Report and Accounts
2 0 2 0
Year ended 31 March 2020
Redcentric plc
Our Vision
To be the most trusted
provider of IT Managed
Services to commercial
and public sector
organisations.
2
Contents
Strategic report
Highlights
Chairman’s statement
Chief Executive Officer’s review
Financial review
Alternative performance measures
Strategy and business model
Section 172 statement – our stakeholders
Risk management
Corporate Responsibility
Governance
Introduction to governance
Corporate governance
Board of Directors
Audit Committee report
Directors’ Remuneration report
Directors’ report
Statement of Directors’ responsibilities
Financial statements
Independent auditor’s report to the members of Redcentric plc
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated cash flow statement
Consolidated statement of changes in equity
Notes to the consolidated financial statements
Company balance sheet
Company statement of changes in equity
Notes to the company financial statements
Appendix: impact of IFRS 16 (unaudited)
Directors and advisers
3
4
7
11
18
25
28
29
32
34
39
40
46
48
49
55
58
60
69
70
71
72
74
107
108
109
111
115
Annual Report and Accounts 2020
Financial highlights
Year ended
31 March
2020 (FY20)
Year ended
31 March
2019 (FY19)
£87.5m
£77.6m
£20.6m
£10.6m
Total revenue -6%
Recurring monthly revenue (RMR) -4%
Adjusted EBITDA +23%
Adjusted operating profit +29%
£93.3m
£80.5m
£16.7m
£8.2m
.
)
m
5
4
3
£
(
.
m
6
9
1
£
.
m
8
8
1
£
.
m
3
1
2
£
.
m
6
9
1
£
p
6
7
4
.
p
9
8
3
.
)
.
m
6
7
1
£
(
Adjusted
cash
generated
from
operations
Reported
cash
generated
from
operations
-8%
-4%
Net debt
+96%
Adjusted
basic
earnings
per share
+22%
FY20
FY19
4
Strategic reportAnnual Report and Accounts 2020 Highlights
Financial performance measures
Total revenue
Recurring monthly revenue (RMR)
Adjusted EBITDA2
Adjusted operating profit 2
Reported operating (loss)
Adjusted cash generated from operations2
Reported cash generated from operations
Year ended
31 March
2020 (FY20)1
Year ended
31 March
2020 (FY20)
pre-IFRS 161
Year ended
31 March
2019 (FY19)
£87.5m
£77.6m
£20.6m
£10.6m
£(8.7)m
£19.6m
£18.8m
£87.5m
£77.6m
£17.6m
£9.7m
£(9.7)m
£16.4m
£15.6m
£93.3m
£80.5m
£16.7m
£8.2m
£(0.3)m
£21.3m
£19.6m
Net debt
£(34.5)m
£(13.5)m
£(17.6)m
Adjusted basic earnings per share2
Reported basic (loss) per share
Dividend per share
4.76p
(7.14)p
1.83p
4.86p
(7.01)p
1.83p
3.89p
(1.32)p
1.40p
Change1
-6%
-4%
+5%
+18%
+3,133%
-23%
-20%
+23%
+25%
+431%
+31%
1 The results for FY20 are not directly comparable with the prior year due to the adoption of IFRS 16 Leases. Further details
are provided in note 1.2 to the financial statements, and in the appendix on page 111, which sets out the impact of IFRS 16
Leases on the primary statements. The % change figures reported above relate to FY20 vs. FY19 pre any IFRS 16 Leases impact.
2 This report contains certain financial measures (APMs) that are not defined or recognised under IFRS but are presented
to provide readers with additional financial information that is evaluated by management and investors in assessing the
performance of the Group.
This additional information presented is not uniformly defined by all companies and may not be comparable with similarly
titled measures and disclosures from other companies. These measures are unaudited and should not be viewed in isolation or
as an alternative to those measures that are derived in accordance with IFRS.
For an explanation of the alternative performance measures used in this report and reconciliations to their most directly related
GAAP measure, please refer to page 25.
5
Strategic reportAnnual Report and Accounts 2020 “
I would like to take the opportunity to
express my sincere thanks and gratitude
to you and your team at Redcentric in
getting a remote access solution up
and running for the GPs and practice
staff in Beds and Herts yesterday.
You and your team did a great job in
turning round a potentially disastrous
situation, showing that with commitment
and effective teamwork barriers can be
taken down and results can be achieved.
Your solution has allowed our clinicians
access to clinical systems, which in turn
enables them to see and treat
our patients at this time of need.
”
A southern England NHS organisation
6
Strategic report
Chairman’s statement
I am very pleased to introduce the Annual Report and Accounts for the Redcentric plc
(“Redcentric” or “Company”) group of companies (the “Group”) for the financial year ended
31 March 2020 (“FY20”), my first as Chairman.
Overview
Dividend and shareback
It has been a very productive year for the Group. Recurring
revenues returned to growth in the last quarter of the
year and we have extracted significant cost efficiencies by
completing the integration of historical acquisitions and
implementing process improvements across the organisation.
Following the end of FY20, we reached a settlement with
the Financial Conduct Authority (“FCA”) in respect of the
historical accounting misstatements uncovered by the
Company in November 2016. The FCA’s investigation into
the Company (the “FCA Investigation”) lasted over three
years and its conclusion is hugely significant for the Group as
it removes a significant barrier and uncertainty for all of our
stakeholders and will allow the management team to focus
solely on running and growing the business.
The COVID-19 pandemic continues to have a significant
effect on the UK economy and also on our colleagues,
suppliers and customers. We responded swiftly to
government guidance and quickly transitioned to remote
working to ensure the safety of our employees and their
families. Our employees have adapted well through a difficult
period and I thank them for their efforts and resilience.
The business as a whole has also responded well to the
challenges created by the pandemic and our strategic
decisions to focus on network integration and the health
sector have put us in a strong position to withstand the
continuing challenges of the pandemic.
Financial results
Revenue for FY20 decreased by 6% to £87.5m (2019:
£93.3m). The reported loss before tax of £10.6m in FY20
(2019: loss of £1.4m). includes a one-off provision of £11.4m
in respect of the restitution scheme announced on 13 July
2020 as part of the settlement reached with the FCA (the
“Restitution Scheme”). Statutory fully diluted earnings per
share (EPS) was a loss of 7.14p (2019: loss of 1.32p), the
decrease largely reflecting the £11.4m restitution provision.
Adjusted fully diluted earnings per share for the year
increased by 21% to 4.68p (2019: 3.86p).
Net debt at 31 March 2020 was £34.5m, including £21.0m
of IFRS16 lease liabilities that were previously classified as
operating leases under IAS17.
During the year, the Company paid the following dividends:
• a final dividend for the year ended 31 March 2019 (“FY19”)
of 1.00p per share, totalling £1.5m; and
• an interim dividend for FY20 of 0.83p per share, totalling
£1.2m.
In light of the Restitution Scheme and the continued
uncertainty resulting from the ongoing COVID-19 pandemic,
the board of directors of the Company (the “Board”) has
decided that it is not prudent to recommend the payment of
a final dividend to shareholders for FY20. The Board remains
committed to a progressive dividend policy and will review
the possibility of reinstating the dividend when it releases the
Group’s half year results.
During the year, the Company implemented a share buyback
programme under which 822,427 shares were purchased by
the Company at a weighted average price of 88p per share.
The Board announced shortly after the end of FY20 that the
programme would be temporarily halted until such time as
the outlook around COVID-19 becomes more certain.
Board and people
During the year there were several changes made to the
Board, as follows:
• I joined the Company on 16 October 2019 as Non-
Executive Chairman, replacing Chris Cole who stepped
down on the same date;
• David Senior joined the Board as Chief Financial Officer on
3 April 2020, replacing Dean Barber who resigned on the
same date. David previously held the position of Finance
Director with the Group and has transitioned into the crucial
Chief Financial Officer role quickly and effectively; and
• Chris Rigg, Non-Executive Director, resigned on
31 December 2019.
Our thanks and best wishes go to Chris Cole, Chris Rigg
and Dean Barber for their service to the Company.
7
Strategic reportAnnual Report and Accounts 2020 Our Mission
We deliver agile,
available and assured
solutions that help
organisations succeed.
8
Chairman’s statement (continued)
As a Board, we believe it is important to keep our own
performance under review and recently undertook an
evaluation assessment, the outcomes of which are in the
Corporate Governance section of this Annual Report.
The Board views the talent of its employees as a major asset
and recognises the high levels of support and commitment
the Group has received from its employees through a period
of significant change. The Group has invested in improving
communication with employees, creating improved working
environments and in listening and responding to employees’
views and feedback. I would like to express the Board’s
sincere thanks for the dedication, hard work and enthusiasm
of all employees in FY20.
Outlook
The business is performing well, with revenues growing,
profit margins increasing and continued excellent cash flows.
Trading in the first quarter of the year ending 31 March 2021
(“FY21”) has been strong and slightly ahead of the Board’s
full year expectations.
The conclusion of the FCA Investigation, along with progress
made on growing both revenues and profitability, put the
Group in a good position to build on the successes to date
and to explore all opportunities open to the Group. I am
confident in the Group’s abilities and look forward to another
successful year ahead for the Group.
Ian Johnson
Non-Executive Chairman
21 July 2020
9
Strategic reportAnnual Report and Accounts 2020 “
Redcentric delivers solid services
consistently and professionally
and they free us up for the
added-value work without any
of those firefighting distractions.
They have been proactive and set
themselves up to meet the needs
of our October Period 11, which is
the busiest time of the year for us.
”
10
Chief Executive Officer’s review
Overview
Since the publication of last year’s Annual Report and Accounts, the Group has faced considerable challenges in the form of a
competitive sector, Brexit, the culmination of the FCA Investigation and the COVID-19 pandemic.
Each challenge has been met head on, the business has progressed well and we are now in a much stronger position than
at the close of FY19. Whilst these achievements are partly reflected in the results FY20, most of the benefits will actually be
reflected in FY21 and beyond.
Review of FY20
At the start of the financial year we set ourselves the following challenges:
• to return the business to underlying recurring revenue growth;
•
to increase our presence in the public sector, targeting the health sector, building on the Health and Social Care Network
(HSCN) successes in FY19;
• to increase profit margins by extracting operational efficiencies;
• to complete the upgrade of our network and platforms; and
• to bring the FCA Investigation to a conclusion.
Return to recurring revenue growth
The graphs and figures below show the quarterly revenue trends for the financial year ended 31 March 2018 (“FY18”) to Q1
of FY21. Excluding Crown Hosting revenues (see further detail below), the business has seen four consecutive quarters of
recurring revenue growth and total recurring revenues have grown for the last two consecutive quarters.
£000
21,000
20,500
20,000
19,500
19,000
18,500
18,000
17,500
17,000
£000
Recurring revenue excluding Crown Hosting
Crown Hosting RMR
£000
2,500
2,000
1,500
1,000
500
-
Total RMR
£000
23,000
22,000
21,000
20,000
19,000
18,000
17,000
Q1
FY18
Q2
FY18
Q3
FY18
Q4
FY18
Q1
FY19
Q2
FY19
Q3
FY19
Q4
FY19
Q1
FY20
Q2
FY20
Q3
FY20
Q4
FY20
Q1
FY21
Q1
FY18
Q2
FY18
Q3
FY18
Q4
FY18
Q1
FY19
Q2
FY19
Q3
FY19
Q4
FY19
Q1
FY20
Q2
FY20
Q3
FY20
Q4
FY20
Q1
FY21
Q1
FY18
Q2
FY18
Q3
FY18
Q4
FY18
Q1
FY19
Q2
FY19
Q3
FY19
Q4
FY19
Q1
FY20
Q2
FY20
Q3
FY20
Q4
FY20
Q1
FY21
Q1
FY18
Q2
FY18
Q3
FY18
Q4
FY18
Q1
FY19
Q2
FY19
Q3
FY19
Q4
FY19
Q1
FY20
Q2
FY20
Q3
FY20
Q4
FY20
Q1
FY21
Recurring revenue excluding Crown Hosting 20,505
20,364
19,945
19,733
19,432
19,123
18,882
18,263
18,245
18,729
18,804
19,134
20,090
Crown Hosting RMR
2,046
1,729
1,358
1,385
1,444
1,323
1,160
917
915
920
581
289
254
Total RMR
22,551 22,093 21,303 21,118 20,876 20,446 20,042 19,180 19,160 19,649 19,385 19,423 20,344
In previous Annual Report and Accounts we have highlighted the effect that the loss of public sector hosting contracts to
Crown Hosting (“Crown Hosting Contracts”) has had on the business and this has accounted for most of the recurring revenue
decline in FY20. In the accounts for the financial year 31 March 2017, revenue from Crown Hosting Contracts accounted for
£8.2m of annualised recurring revenues, dropping to £4.8m in FY19 and £2.7m in FY20. The loss of this revenue has had a
significant effect on the business as data centre costs are predominantly fixed and therefore declines in revenue largely result
in reduced bottom line profitability.
Following the end of FY20, revenue growth has been very strong, reflecting changes made to the management of the
business’ delivery team, an accelerated pace in HSCN network roll outs and strong Q4 FY20 and Q1 FY21 sales.
11
Strategic reportAnnual Report and Accounts 2020 Chief Executive Officer’s review (continued)
Public sector contracts
In the second half of FY19 we took the strategic decision to focus on our core network capabilities and to increase our
presence in the public sector. The first stage of this strategy was to put significant effort and resource in to winning public
sector network business, with a particular focus on HSCN. The HSCN procurement process represented a one-off procurement
opportunity resulting from the government’s decision to close down its fifteen-year-old legacy N3 network and replace it with a
more modern and regional network for health and social care organisations.
In last year’s Annual Report and Accounts we detailed the HSCN contract wins and highlighted significant cross-selling
opportunities. During FY20 and Q1 of FY21 we achieved significant additional sales in both cross-selling additional products
to HSCN customers and in sales to new logo organisations. Our success in the HSCN procurement process and our good
performance in rolling out HSCN networks has given us a much higher profile within both the public and private health sectors.
Installation of the HSCN networks is largely complete and revenues from these contracts, along with the additional cross-sell
contracts, are the prime driver for the underlying recurring revenue growth experienced in FY20 and anticipated for FY21. We
anticipate that approximately 25% of our FY21 revenue will be derived from the combined public and private health sectors.
The table below summarises the original HSCN contract wins, the subsequent cross-sell wins and sales to new logos.
HSCN & YHPSN – Initial wins
Presented to Board Jun-19
Cross sell and growth
Jun-19 to 30-Jun-20
Total sold
Total to 30-Jun-20
No of
customers
RMR
sold £
Annual
revenue £
No of
customers
RMR
sold £
Annual
revenue £
No of
customers
RMR
sold £
Annual
revenue £
YHPSN
Worcester Health
Midlands & Lancs
BLMK
East AP
BSOL
Sandwell & West
STW
13
1
1
10
4
1
1
2
36,453
437,437
YHPSN
33
181,578
2,178,938
YHPSN
25,271
303,252
Worcester Health
22,229
266,748
Midlands & Lancs
84,188
1,010,253
BLMK
21,260
255,120
East AP
56,517
678,204
BSOL
31,227
374,724
Sandwell & West
15,883
190,596
STW
1
1
7
3
1
1
2
14,838
178,058
Worcester Health
121
1,447
Midlands & Lancs
41,208
494,493
BLMK
35,790
429,483
East AP
17,962
215,548
BSOL
4,202
1,857
50,420
22,283
Sandwell & West
STW
40
1
1
10
4
1
1
2
218,031
2,616,375
40,109
481,310
22,350
268,195
125,396
1,504,746
57,050
684,603
74,479
893,752
35,429
425,144
17,740
212,879
HSCN & YHPSN
33
293,028
3,516,334
HSCN & YHPSN
49
297,556
3,570,670
HSCN & YHPSN
60
590,584
7,087,004
Other Public Sector
Total Public Sector
n/a
33
-
-
Other Public Sector
293,028
3,516,334
Total Public Sector
53
102
105,861
1,270,328
Other Public Sector
403,416
4,840,998
Total Public Sector
53
113
105,861
1,270,328
696,444
8,357,331
Note: other public sector customers only reported from Jun-19 onwards and therefore any sales to other public sector customers before this period are
excluded from the total sold figure.
Operational efficiencies
Our focus on operational efficiencies continued throughout FY20, with a view to fully integrating all aspects of historical
acquisitions into one unified and efficient business.
During the year, we undertook a detailed review of all areas of the business and a dedicated project group was set up to focus
on the following:
• rationalisation and integration of historical physical networks;
• rationalisation of third-party data centres;
• consolidation of three historical network platforms into a single network platform;
• restructure of our Development and Delivery teams;
• replacement of five legacy systems with a single ERP solution; and
• standardisation of employment contracts and colleague benefits.
12
Strategic reportAnnual Report and Accounts 2020 Chief Executive Officer’s review (continued)
Rationalisation and integration of historical physical
networks
In the first half of FY20 we completed the integration of our
physical network by decommissioning a network ring which
was acquired as part of a historical acquisition. Customers
were migrated off this ring and onto our main network,
yielding annualised savings of £0.5m.
In additional to making our core network more efficient,
we undertook a full audit of all our customer tail circuits
and cancelled over one thousand surplus circuits, yielding
annualised savings of £1.5m.
Rationalisation of property portfolios and third-party
data centres
In the second half of FY20 we commenced the overhaul of
our third-party data centre portfolio. This involved moving
core network platforms and colocation and managed
serviced customers out of three third party London data
centres and into our own data centre in London. With the
exception of one customer move, this work is now complete,
and annualised savings of £1m will be realised as a result.
In the latter part of FY19 we vacated the Theale office and
moved staff to the nearby Reading data centre. This lease
was settled in FY20 on favourable terms, resulting in an
exceptional credit of £141k.
Consolidation of network platforms
As a result of past acquisitions, the Group has historically
operated three separate network platforms. Maintaining
three platforms is inefficient and the level of functionality
varied considerably across the respective platforms. As
part of the data centre moves, we are in the process of
consolidating our three platforms into one and moving our
core equipment out of three third party London data centres
and into our own managed data centre in London.
Restructuring of development and delivery teams
During the year we made changes to both the Development
and Delivery teams and this yielded immediate results.
Having not released any new products to market in the last
two years, we now have an updated product portfolio and
a clear product development path. We have restructured
the Development team and upgraded the skillsets of team
members to meet the requirements of our customers and the
market, as well as implementing a formal methodology for
the delivery of new products.
This new way of working enabled the Group to respond
effectively to the COVID-19 pandemic and produce a number
of revenue generating, low cost and high margin solutions
within a short timeframe, supporting the FY20 closing
position and contributing strongly to FY21 Q1 revenues.
At the end of FY20 we restructured the Delivery team,
replacing the entire senior management of the team in the
process. A new position of Delivery Director was created
to sit on the senior management team of the Group (the
“Operating Board”) and two new Senior Programme
Managers joined the department to manage the private
and public sector delivery teams. The results to date,
whilst benefiting from a different mix of product sales (see
COVID-19 below), have been very impressive. In the five
months to 30 June 2020 we installed more monthly recurring
revenue than we did in the previous nine months.
Having strengthened the management of the Delivery
team, the Delivery Director’s focus is now on improving
processes and customer communication. In the latter part
of June 2020, we commenced the implementation of
workflow software to manage the complex implementation
of customer network roll outs more effectively. Once this is
complete, we will implement workflow software for all other
product installations. Whilst this project is in its early stages,
we expect that this will result in significant staff efficiencies
whilst also significantly improving customer service and
communication. It is anticipated that the full effect of these
savings will be realised from Q4 of FY21 onwards.
Implementation of a single enterprise resource planning
(“ERP”) system
The replacement of five legacy operational systems with
a single ERP system has been a difficult and long running
project for the business but will yield significant benefits once
live. During FY20 we went live with the sales module of the
ERP system, which has enabled improved forecast accuracy
and automated inter-departmental workflow. The launch of
the finance and operations modules of the system has been
deferred to 1 October 2020 as a result of the COVID-19
pandemic.
During FY20 we introduced a weekly and monthly KPI
dashboard covering all significant financial and operational
KPIs. In light of COVID-19, the requirement for timely and
accurate information has increased significantly and, as a
result, we have introduced daily reporting of sales orders,
revenue installed and cash collected. Once fully live, the new
ERP system will give rise to considerably improved data and
will automate reporting, resulting in significantly improved
and timely management information.
13
Strategic reportAnnual Report and Accounts 2020 Chief Executive Officer’s review (continued)
Standardisation of employment contracts and
colleague benefits
A feature of our past acquisitions is that we had ten different
employment contracts, each with differing terms and
conditions and colleague benefits. Post the year end we
commenced a project to move all colleagues on to one
standardised employment contract and to rationalise any
administratively complex colleague benefits.
is now free to focus solely on the business; legal costs will
be substantially reduced; and we are now free to sell to all
markets including those regulated by the FCA.
Since the discovery of the accounting misstatements, the
Group has been transformed, with all members of both the
Board and Operating Board being replaced. The finance
function has been rebuilt and controls across the business
have been materially strengthened.
Upgrade of network and platforms
COVID-19 pandemic
In FY19 we commenced a major upgrade of our network and
product platforms and this was largely completed in FY20.
Overview
The upgrade of our core network from a 10Gb capacity to
100Gb capacity was completed during the year and whilst
this represented a significant cost (£1.5m), it is anticipated
that the increase in bandwidth will support our growth and
customers’ thirst for extra bandwidth for at least the next
five years.
During the year we spent £1.5m on the second and final
stage of upgrading our Infrastructure as a Service (IaaS)
platform. The new platform has now been fully deployed
and we are in the process of migrating customers off our old
system and on to our new platform. The new platform offers
full hybrid cloud capabilities and replaces a system that was
over ten years old.
During the year, and as part of our data centre restructuring
project, we commenced a significant upgrade of our London
data centre. This work will continue in to FY21 and, when
complete, will upgrade the facility from a tier one to a tier
three facility, bringing the London data centre up to the
standard of the Harrogate and Reading data centres. The
work has involved significant electrical works, with equipment
as old as thirty years being replaced.
FCA Investigation
On 26 June 2020, the Company reached a settlement
with the FCA in respect of certain historical accounting
misstatements that were uncovered by the Group in
November 2016. As part of this settlement, the Company
agreed to implement the Restitution Scheme to compensate
net purchasers of ordinary shares in the Company between 9
November 2015 and 7 November 2016.
The FCA Investigation was ongoing for 3½ years and was
a significant burden on the Group. Whilst the cost of the
Restitution Scheme, at £11.4m, is considerable, we are
pleased to finally have the matter resolved. The settlement
with the FCA means that the Group’s management team
The Group’s overriding concern is the health, safety and
wellbeing of its colleagues, customers, and business partners.
We have complied and continue to comply with all relevant
government recommendations both in the UK and India and
the majority of colleagues have been working remotely since
17 March 2020. We pride ourselves in delivering excellent
customer service and this has not been affected following
the changes to working arrangements. This has been made
possible by our colleagues’ flexible and positive attitude and
we thank them for their support during this time.
Sales
During the COVID-19 pandemic, sales have remained strong
with new orders received in March 2020, materially ahead of
March 2019 and sales orders for Q1 FY21 slightly ahead of
Q1 FY20. Over the COVID-19 period we have seen increased
demand for our secure remote access product, increased
bandwidth and call-based solutions. We have also, however,
seen delays in large scale IT and network projects.
Deliveries
Deliveries have been particularly strong during the COVID-19
pandemic, reflecting related and non-related factors. During
the pandemic, the mix of sales has changed to products that
are quicker to install and this has resulted in improved order
to revenue timescales. Non COVID-19 related factors include
additional resource deployed to roll out the HSCN networks
and significantly improved processes and management
following the changes made to the Delivery team.
Cash collection
Cash collection has been strong, with over 95% of the
31 March 2020 year-end balance collected to date, which
is ahead of the previous year’s position.
During the pandemic we have not experienced any
significant bad debts, but we are supporting approximately
twenty customers with payment plans. All these plans are
up-to-date, and the amounts outstanding are not significant.
14
Strategic reportAnnual Report and Accounts 2020 Chief Executive Officer’s review (continued)
Colleagues
As a business we carry out regular business continuity
exercises and as part of these exercises we routinely stress
test our operational systems and remote working capabilities.
This foresight meant that we were very well prepared for the
sudden decision to deploy most of our colleagues out of the
office to working from home. Our offices in both the UK and
India have been closed for approximately four months. To
the credit of our colleagues, we have operated in an efficient
manner, without any significant incidents and we have
continued to deliver excellent service to our customer base.
Given the good levels of business activity we are pleased that
it has not been necessary to furlough any colleagues.
Key risks
As described throughout this report, the business is in a
strong position and is well placed to react to the challenges
that the COVID-19 pandemic will no doubt bring in the
future. The main risks to the business are things which are
outside our control such as the wider economic position
and the financial strength of our customer base. We have
reviewed our customer base in detail and whilst we have
some exposure to the retail and leisure sectors, we believe
that our customers are well capitalised to enable survival over
the medium term.
Summary and outlook
Summary
FY20 was a significant year for the business and we ended
it in a much stronger position than we started it. After three
years of decline, recurring revenues are now growing, with
four quarters of underlying recurring revenue growth. 89%
of our revenues are recurring and these are underpinned
by long term contracts which give good forward visibility.
Profit margins are increasing as a result of the efficiency
and integration initiatives undertaken and we are currently
achieving EBITDA margins in excess of 25%. Excellent cash
conversion, which has been a constant feature of the business
over the last three years, remains strong and with the network
and platform upgrades largely complete, we anticipate lower
levels of capital expenditure in the medium term.
The Group’s core network, cloud platform, data centres and
operational systems have all been upgraded meaning that
we now have modern, resilient and scalable networks and
platforms to support future growth. The strategic decision
to focus on our core strength as a network integrator and
to build on the HSCN contract wins has put us in a good
position to leverage future opportunities, especially in the
current environment where networks and remote working
capabilities are essential to most UK organisations.
The settlement reached with the FCA is hugely significant
in that it allows the management team to focus solely on
the business, reopens FCA regulated markets and removes
uncertainty from new logo customers wishing to transfer their
mission critical IT infrastructure to Redcentric.
Outlook
We have had a good start to FY21 with all the key business
metrics of sales, deliveries and cash flows showing positive
trends. The integration and efficiency programmes
undertaken in FY20 have materially reduced our cost base
and this, taken with recurring revenue growth, will lead to
significantly increased profitability and cash flows in FY21
and beyond.
Whilst the COVID-19 pandemic has created significant
challenges, it is yet to have an adverse effect on the business’
performance. With a customer base secured on long term
contracts, recurring revenues accounting for 89% of our total
revenues and a product set very much relevant to the current
environment, we are cautiously optimistic for the future.
Having completed the integration of historical acquisitions
and implemented efficiency initiatives across the business,
we are now in a good position to move to the next stage of
the Group’s development. Our strong financial performance,
low levels of debt and the removal of the uncertainty caused
by the FCA Investigation all put us in a strong position to
explore the many opportunities open to us.
Peter Brotherton
Chief Executive Officer
21 July 2020
15
Strategic reportAnnual Report and Accounts 2020 Our Values
Our values suppor t our
strategic objectives and sit
at the heart of our business
and our culture. We work
hard to integrate our values
into everything we do.
16
Proactive
We think and
act quickly
Trusted
We do what we
say we will
Transparent
We are open,
honest and fair
Inspired
We create excitement
through innovation
Collaborative
We work together to
deliver a common goal
17
Financial review
Financial performance measures
Total revenue
Recurring monthly revenue (RMR)2
Adjusted EBITDA2
Adjusted operating profit 2
Reported operating (loss)
Adjusted cash generated from operations2
Reported cash generated from operations
Net debt
Adjusted basic earnings per share2
Reported basic (loss) per share
Dividend per share
Year ended
31 March
2020 (FY20)1
Year ended
31 March
2020 (FY20)
pre-IFRS 161
Year ended
31 March
2019 (FY19)
£87.5m
£77.6m
£20.6m
£10.6m
£(8.7)m
£19.6m
£18.8m
£(34.5)m
4.76p
(7.14)p
1.83p
£87.5m
£77.6m
£17.6m
£9.7m
£(9.7)m
£16.4m
£15.6m
£93.3m
£80.5m
£16.7m
£8.2m
£(0.3)m
£21.3m
£19.6m
£(13.5)m
£(17.6)m
4.86p
(7.01)p
1.83p
3.89p
(1.32)p
1.40p
Change1
-6%
-4%
+5%
+18%
+3,133%
-23%
-20%
+23%
+25%
+431%
+31%
1 The results for FY20 are not directly comparable with the prior year due to the adoption of IFRS 16 Leases. Further details are provided in note 1.2 to the
financial statements, and in the appendix on page 111, which sets out the impact of IFRS 16 Leases on the primary statements. The % change figures
reported above relate to FY20 vs. FY19 pre any IFRS 16 Leases impact.
2 For an explanation of the alternative performance measures used in this report, please refer to page 25.
Overview
This year’s accounts have been dominated by three factors that have a material impact to the financial statements:
1. IFRS 16 brings all lease commitments on balance sheet, creating a right of use asset at adoption of £20.8m (FY20: £22.7m),
with a corresponding liability at adoption of £23.0m (FY20: £23.5m). Operating lease expenses of £3.0m have been replaced
with depreciation and interest charges of £2.1m and £1.1m respectively, thereby increasing adjusted EBITDA by £3.0m.
2. The settlement reached with the FCA resulted in the Restitution Scheme being implemented with an estimated cost of
£11.4m which has been provided for in FY20. The resulting impact is that the Group has reported a loss before taxation of
£10.6m (FY19: loss of £1.4m) and recorded a provision of £11.4m within current liabilities. Post the year end, 5.3m shares
were issued generating £5.8m of cash which will be utilised to settle part of this liability. The remaining £5.6m will be settled
by either issuing shares or by payment in cash. Full details are given in note 2.
3. As at 31 March 2020, the bank facility was due to expire on 30 November 2020 and so the year-end balance of £12.5m has
been classified within current liabilities. On 9 June 2020, the Group extended its banking facilities to 30 June 2022.
The key financial highlights are as follows:
•
•
Total revenue reduced by 6.2% to £87.5m (FY19: £93.3m). Recurring monthly revenue fell by 3.6% to £77.6m (FY19:
£80.5m), representing 89% (FY19: 86%) of the total revenue.
The Group reported loss before taxation of £10.6m in FY20 (2019: loss of £1.4m). Adjusted EBITDA increased by £3.9m and
adjusted operating profit increased by £2.4m. On a pre-IFRS 16 basis, both adjusted EBITDA (up £0.9m to £17.6m)
and adjusted operating profit (up £1.5m to £9.7m) were higher than the prior year, reflecting an improvement to gross profit
margin and further reductions to the operating cost base in the year.
•
Net debt at 31 March 2020 was £34.5m, including £21.0m of IFRS 16 lease liabilities that were previously classified as
operating leases under IAS17.
18
Strategic reportAnnual Report and Accounts 2020 Financial review (continued)
Revenue
Revenue for the year ended 31 March 2020 was generated wholly from the UK and is analysed as follows:
Recurring revenue
Product revenue
Services revenue
Total revenue
Year ended
31 March
2020
Year ended
31 March
2019
£000
£000
77,617
5,215
4,653
87,485
80,544
5,810
6,906
93,260
Revenue is analysed into the following categories:
•
Recurring monthly revenue, lower at £77.6m (FY19: £80.5m), largely driven by a reduction in public sector hosting revenues
(£2.1m), caused by the government’s Crown Hosting policy. Recurring revenues excluding Crown Hosting have increased in
each of the last three quarters.
•
Non-recurring product revenue, which was lower at £5.2m (FY19: £5.8m), was impacted by the industry trend to move away
from on-premise to cloud solutions and by customers delaying discretionary spending due to the economic uncertainty.
• Non-recurring services revenue was lower at £4.7m (FY19: £6.9m).
Gross profit
Gross profit decreased by 2.1% (£1.2m) reflecting the Group’s lower revenue, with an improvement in gross margin to 63.1%
(FY19: 60.4%) driven by the network restructuring programme, specifically cancelling over 1000 third party access circuits.
This activity was completed in Q4 FY20 and generated annualised savings of £1.5m. One-off exceptional costs of £0.2m were
recognised in relation to the termination of these circuits.
Adjusted operating costs
The Group’s adjusted operating costs (operating expenditure excluding depreciation, amortisation, exceptional items and
share-based payments) are set out in the table below:
UK staff costs
Office and data centre costs
Network and equipment costs
Other sales, general and administration costs
Offshore costs
Total adjusted operating costs
Year ended
31 March
2020
Year ended
31 March
2019
Change
£000
£000
£000
Change %
19,738
20,507
4,393
6,680
1,887
1,886
7,049
7,311
2,693
2,091
(769)
(2,656)
(631)
(806)
(205)
34,584
39,651
(5,067)
-4%
-38%
-9%
-30%
-10%
-13%
19
Strategic reportAnnual Report and Accounts 2020 Financial review (continued)
Employees
Year-end headcount
UK
India
Total employees
Average headcount
UK
India
Total employees
Year ended
31 March
2020
Year ended
31 March
2019
Variance
298
144
442
310
156
466
(12)
(12)
(24)
Year ended
31 March
2020
Year ended
31 March
2019
Variance
311
151
462
329
150
479
(18)
1
(17)
In the FY20 results, costs recognised under IAS17 (leases) in previous years have been reclassified as leases under IFRS
16. Operating lease expenses of £3.0m have been replaced with depreciation and interest charges of £2.1m and £1.1m
respectively.
Total adjusted operating costs for FY20 were 12.8% (£5.1m) lower than prior year, reflecting:
• UK staff costs down £0.8m, driven by lower headcount and operating lease reclassifications of £0.1m;
• office and data centre costs reduced by £2.7m, primarily reflecting operating lease reclassifications of £2.5m;
•
network and equipment costs reduced by £0.6m, primarily due to the data centre and network restructuring programme,
which is now largely complete and will generate £0.8m of annualised savings. One-off exceptional costs of £1.2m were
recognised in relation to the exit from three third party data centres;
•
other sales, general and administration costs down £0.8m, with the prior year including £0.5m of HSCN bid (consultancy)
costs; and
• offshore costs reduced by £0.2m due to office operating lease reclassifications.
20
Strategic reportAnnual Report and Accounts 2020 Financial review (continued)
Adjusted EBITDA
Adjusted EBITDA is EBITDA excluding exceptional items (as set out in note 9), share-based payments and associated
National Insurance. The same adjustments are also made in determining the adjusted EBITDA margin. Items are only classified
as exceptional due to their nature or size, and the Board considers that this metric provides the best measure of assessing
underlying trading performance.
Reported operating (loss)
Amortisation of intangible assets arising on business combinations
Amortisation of other intangible assets
Depreciation
EBITDA
Exceptional items
Share-based payments and associated National Insurance
Adjusted EBITDA
Year ended
31 March
2020
Year ended
31 March
2019
£000
£000
(8,737)
6,252
1,197
8,814
7,526
12,516
562
20,604
(285)
6,252
1,140
7,330
14,437
1,911
366
16,714
Adjusted EBITDA increased to £20.6m, £3.9m higher than prior year. Of this increase, £3.0m relates to IFRS 16 operating lease
reclassifications, with the remaining increase reflecting operational efficiencies of £2.1m offset by a reduction in gross profit
of £1.2m.
Taxation, interest and dividend
The tax credit for the year was £0.0m (FY19: £0.6m charge), comprising an income tax charge of £0.8m (FY19: £0.8m), a current
year deferred tax credit of £0.8m (FY19: £0.8m credit) and a deferred tax credit in respect of prior years of £0.0m (FY19: £0.6m
charge).
Net finance costs for the year were £1.9m (FY19: £1.1m), including £1.2m of IFRS 16 finance charges of which £1.1m related to
leases previously recognised as operating leases under IAS17.
During the year, the Company paid the following dividends:
• a final dividend for FY19 of 1.00p per share, totalling £1.5m; and
• an interim dividend for FY20 of 0.83p per share, totalling £1.2m.
In light of the Restitution Scheme and the continued uncertainty around COVID-19 the Board is not recommending payment of
the final dividend to shareholders for FY20. Further, the Board announced on 3 April 2020 that the share buyback programme
would be temporarily halted until such time as the outlook becomes more certain.
21
Strategic reportAnnual Report and Accounts 2020 Financial review (continued)
Net debt
During the year, net debt increased by £16.9m to £34.5m as at 31 March 2020, with the movements shown in the table below:
As at
31 March
2018
Net cash
flow
Net non-
cash flow
As at
31 March
2019
Net cash
flow
Net non-
cash flow
£000
£000
£000
£000
£000
£000
Cash
RCF
Term Loan
Lease Liabilities
6,089
(27,864)
-
(5,932)
(27,707)
1,125
8,500
(66)
(885)
8,674
(8)
(68)
(297)
1,841
1,468
7,206
(19,432)
(363)
(4,976)
(17,565)
(3,496)
7,000
212
6,234
9,950
-
(51)
-
(26,883)
(26,934)
As at
31 March
2020
£000
3,710
(12,483)
(151)
(25,625)
(34,549)
Included in lease liabilities at 31 March 2020 are £21.0m of IFRS 16 lease liabilities that were previously classified as operating
leases under IAS17. Other movements reflect capital expenditure of £6.9m, £0.8m on exceptional items and £3.5m on
dividends and share buybacks.
£7.5m of unutilised bank facility was cancelled during the year, leaving a total facility at 31 March 2020 of £47.5m, comprising
a revolving credit facility (“RCF”) of £17.5m, an overdraft facility of £5.0m and a £5.0m asset financing facility. In addition, the
Group has access to a £20.0m accordion facility. At 31 March 2020 £5.0m of the RCF, £5.0m of the overdraft and £3.9m of the
asset financing facility was undrawn.
On 8 June 2020, these facilities were extended to 30 June 2022, with all terms and covenants remaining the same until this
time. On 17 July 2020 certain amendments were made to the Facilities Agreement to allow for the impact of the Proposed
Restitution Scheme.
Trade Debtors
In the year, focus remained on collecting legacy debt to improve the ageing profile. At the year-end, debt over 90 days old has
reduced by 56% year on year, whilst debt greater than 180 days has reduced by 85%.
Year ended
31 March
2020
Year ended
31 March
2019
£000
£000
10,993
1,656
593
220
288
63
13,813
(1,438)
12,375
9,074
2,628
505
99
390
416
13,112
(1,521)
11,591
Current
1 to 30 days overdue
31 to 60 days overdue
61 to 90 days overdue
91 to 180 days overdue
> 180 days overdue
Gross trade debtors
Provision
Net trade debtors
Trade creditor days were 40 at 31 March 2020 compared to 28 as at 31 March 2019.
22
Strategic reportAnnual Report and Accounts 2020 Financial review (continued)
Financing
Committed
Year ended 31 March 2020
Year ended 31 March 2019
Available
Drawn
Undrawn
Available
Drawn
Undrawn
£000
£000
£000
£000
£000
£000
- Revolving credit facility
17,500
12,483
5,017
- Term loans
- Leases
Uncommitted
- Bank overdraft
- Asset financing facility
151
25,625
43,276
151
25,625
38,259
5,000
3,853
8,853
-
-
-
-
-
5,017
5,000
3,853
8,853
25,000
363
4,976
30,339
2,000
4,724
6,724
19,500
363
4,976
24,839
-
-
-
5,500
-
-
5,500
2,000
4,724
6,724
Total borrowing facilities
52,129
38,259
13,870
37,063
24,839
12,224
In addition to the above facilities, the Group has access to a non-committed £20.0m accordion facility. During the year, the
Group cancelled £7.5m of unutilised facility reducing the committed level from £25.0m to 17.5m and thereby saving £57k in
annualised commitment fees.
David Senior
Chief Financial Officer
21 July 2020
23
Strategic reportAnnual Report and Accounts 2020 “
Redcentric has not
been just a supplier –
they are a full partner
with high engagement
who we can work with
and who we trust.
”
24
Alternative performance measures
This Annual Report and Accounts contains certain financial measures (“APMs”) that are not defined or recognised under IFRS
but are presented to provide readers with additional financial information that is evaluated by management and investors in
assessing the performance of the Group.
This additional information presented is not uniformly defined by all companies and may not be comparable with similarly
titled measures and disclosures by other companies. These measures are unaudited and should not be viewed in isolation or
as an alternative to those measures that are derived in accordance with IFRS.
The impact of IFRS 16 on the consolidated income statement, consolidated statement of financial position, and consolidated
cash flow statement for the year ended 31 March 2020 is set out in an appendix to these financial statements.
Recurring monthly revenue
Recurring revenue is the revenue that annually repeats either under contractual arrangement or by predictable customer habit.
It highlights how much of the Group’s total revenue is secured and anticipated to repeat in future periods, providing a measure
of the financial strength of the business. It is a measure that is well understood by the Group’s investor and analyst community
and is used for internal performance reporting.
Reported revenue
Non-recurring revenue
Recurring revenue
Year ended
31 March
2020
Year ended
31 March
2019
£000
£000
87,485
(9,868)
77,617
93,260
(12,716)
80,544
Recurring revenue makes up 89% of total revenue in FY20, an increase of 3% from prior year (86%).
Maintenance capital expenditure
Maintenance capital expenditure is the capital expenditure that is incurred in support of the Group’s underlying infrastructure
rather than in support of specific customer contracts.
Reported capital expenditure
Customer capital expenditure
Maintenance capital expenditure
Year ended
31 March
2020
Year ended
31 March
2019
£000
£000
6,922
(2,470)
4,452
5,889
(3,983)
1,906
There was an acceleration of capital expenditure in the year primarily relating to maintenance capex, with net capital
expenditure increasing by £1.0m to £6.9m (FY19: £5.9m). The main areas of investment were all aligned to the future growth
and efficiency of the Group and are detailed below:
•
•
IaaS platform upgrade (£1.5m), providing a more durable and scalable platform, together with enriched features for our
customers; and
core network upgrade (£1.0m), increasing bandwidth from 10Gb to 100Gb providing customers with increased speed
and resilience.
25
Strategic reportAnnual Report and Accounts 2020 Alternative performance measures (continued)
Adjusted EBITDA
Adjusted EBITDA is EBITDA excluding exceptional items (as set out in note 9), share-based payments and associated National
Insurance. The same adjustments are also made in determining the adjusted EBITDA margin. Items are only classified as
exceptional due to their nature or size, and the Board considers that this metric provides the best measure of assessing
underlying trading performance.
Reported operating (loss)
Amortisation of intangible assets arising on business combinations
Amortisation of other intangible assets
Depreciation
EBITDA
Exceptional items
Share-based payments and associated National Insurance
Adjusted EBITDA
Year ended
31 March
2020
Year ended
31 March
2019
£000
£000
(8,737)
6,252
1,197
8,814
7,526
12,516
562
20,604
(285)
6,252
1,140
7,330
14,437
1,911
366
16,714
Adjusted EBITDA increased to £20.6m, £3.9m higher than prior year. Of this increase, £3.0m relates to IFRS 16 operating lease
reclassifications, with the remaining increase reflecting operational efficiencies of £2.1m offset by a reduction in gross profit
of £1.2m.
Adjusted operating profit
Adjusted operating profit is operating loss excluding amortisation on acquired intangibles, exceptional items and share-based
payments. The same adjustments are also made in determining the adjusted operating profit margin and in determining
adjusted earnings per share (“EPS”). The Board considers this adjusted measure of operating loss to provide the best metric
of assessing underlying performance as it excludes exceptional items and the amortisation of acquired intangibles arising from
business combinations which varies year on year depending on the timing and size of any acquisitions.
Reported operating loss
Amortisation of intangible assets arising on business combinations
Exceptional items
Share-based payments
Adjusted operating profit
Year ended
31 March
2020
Year ended
31 March
2019
£000
£000
(8,737)
6,252
12,516
562
10,593
(285)
6,252
1,911
366
8,244
The EPS calculation further adjusts for the tax impact of the operating profit adjustments, presented in note 13.
26
Strategic reportAnnual Report and Accounts 2020 Alternative performance measures (continued)
Adjusted operating costs
Adjusted operating costs are operating costs less depreciation, amortisation, exceptional items and share-based payments.
Year ended
31 March
2020
Year ended
31 March
2019
£000
£000
63,925
(8,814)
(6,252)
(1,197)
(12,516)
(562)
34,584
56,650
(7,330)
(6,252)
(1,140)
(1,911)
(366)
39,651
Reported operating expenditure
Depreciation
Amortisation of intangibles arising on business combinations
Amortisation of other intangible assets
Exceptional items
Share-based payments
Adjusted operating expenditure
David Senior
Chief Financial Officer
21 July 2020
27
Strategic reportAnnual Report and Accounts 2020 Strategy and business model
The market for IT managed services in the UK is highly fragmented and is served by a broad spectrum of businesses
from global telecommunication companies through hardware and software providers, system integrators and a range of
independent managed service providers of varying sizes, through to companies providing individual elements of the IT
managed services spectrum. The market is growing, driven by the continued move towards off-premise solutions and mobile
access to secure services.
Redcentric positions itself in the market as being able to combine the benefits of proprietary network and data centres with a
flexible and technically skilled workforce able to deliver and support critical services and solutions in a highly secure environment.
Redcentric seeks to differentiate itself in three distinct ways:
•
innovation – innovation in the design and delivery of services;
• reliability – the right technical skills, organised in the right way, to give predictable high-quality results; and
• value – service offerings that are designed to offer value for money to mid-market customers.
Through these differentiators, Redcentric aims to attract new customers and to deepen and broaden its relationships with
existing customers.
The Board’s strategy for growth comprises:
•
•
ongoing investment in expanding and enhancing the Group’s own infrastructure so that it can provide its customers with the
very highest levels of security and service; and
effective use of the Group’s scale and resources to explore and invest in new technologies so that its customers can benefit
from the high levels of innovation across the whole industry.
The Board believes that the Group’s position between the very large system integrators and network operators and the smaller
competitors (that may lack delivery structure, reputation, reliability and financial strength) is a very compelling one. The Group
has a strong and reliable set of core infrastructure and has developed a delivery model that provides assurance and certainty
for customers.
28
Strategic reportAnnual Report and Accounts 2020 Section 172 statement – our stakeholders
The Board recognises its duty to consider the needs and concerns of the Group’s key stakeholders during its discussions and
decision-making. The Board has had regard to the importance of fostering relationships with its stakeholders as set out below
and also detailed in the Strategic Report and Corporate Governance Report of this Annual Report. More information on how
the Directors have discharged their duties under section 172 of the Companies Act 2006 is also available in the rest of this
Strategic Report on pages 4 to 37 and Corporate Governance Report on pages 39 to 57.
Colleagues
•
•
•
•
Colleague briefings – quarterly colleague briefing sessions are held with the Operating Board to enable colleagues to ask
questions and raise issues and for colleagues to be provided with updates on the business.
Performance updates – key performance information such as trading updates and financial results are always promptly
communicated to colleagues.
Colleague survey – colleagues were surveyed for the first time in a number of years in FY20 and an action plan has been
developed in response to some of the key themes.
Learning management – an online learning management system has been launched in response to feedback from
colleagues around development and support.
• Performance management portal – a Group-wide online objectives and feedback system has been introduced.
•
•
•
New vision, mission and values – these have been developed in consultation with colleagues to align all colleagues to a
common vision, mission statement and set of core values.
Share schemes – the Group has in place a Save As You Earn Option Plan to enable colleagues to become personally
invested as shareholders of the Group.
Further information is included in the Corporate Responsibility section on pages 34 to 37 and in the Corporate Governance
Report on pages 39 to 57.
Customers
•
Annual customer forum – the Chief Executive Officer and members of the Operating Board meet with executives of key
customers to communicate business updates, operational updates, product roadmap developments and gain key customer
feedback. This enables increased engagement with customers at a strategic level and a greater understanding of both
customer pain points and future requirements from strategic to end-user level. Key business improvement initiatives are also
published and progress regularly reviewed.
• Monthly newsletter – a electronic newsletter is sent out in the final week of every month to the primary and technical
contacts within our customer database to communicate key announcements, thought leadership material and new solutions
customer advocacy.
•
•
•
Customer survey – a bi-annual net promoter score (NPS) survey is carried out to gain customer feedback on service
experience and a key service improvement plan is developed from the results of the survey.
Monthly and quarterly service reviews – regular service reviews with customers are led by Service Delivery Managers and
Account Managers, focused on service experience and opportunity identification.
Daily social media updates – these updates are provided through our corporate social media channels (LinkedIn, Twitter and
Facebook) and contain key updates and customer case studies.
29
Strategic reportAnnual Report and Accounts 2020 Section 172 statement – our stakeholders (continued)
Suppliers
•
•
•
The Board is committed to building trusted partnerships with the Group’s suppliers, which are crucial to delivering many of
our commitments. Through these partnerships, we deliver value and quality to our customers and we help our partners to
develop and grow.
We have in place a programme which ensures regular engagement and communication with all suppliers but particularly
key strategic partners, including an annual review and other regular check-ins.
Some of our strategic partnerships are listed below:
- Microsoft – Cloud Productivity (GOLD) Cloud Platform (GOLD) Datacentre (SILVER);
- Cisco – GOLD;
- HPe – Silver PRSP (Partner Ready Service Provider); and
- Citrix – CSPP (Citrix Solutions Provider Programme).
Shareholders
•
•
•
•
Analysts and investor meetings – the Chief Executive Officer and Chief Financial Officer hold analyst and investor roadshows
meetings throughout the year, particularly following the release of the Group’s interim and full year results and feedback
from those meetings is shared with the Board.
Annual General Meeting (“AGM”) – the AGM is a key opportunity for engagement between the Board and shareholders,
particularly private shareholders.
Annual Report and Accounts – the Group’s annual report and accounts is made available to all shareholders both online and
in hard copy where requested.
Group website – all presentations and announcements and other key shareholder information is available on the investor
section of the Group’s website.
• Further information is included in the Corporate Governance Report on page 40.
30
Strategic reportAnnual Report and Accounts 2020 “
The power of the
network provided by
Redcentric and Purple
helps Pizza Express
delight over 31.5 million
customers a year.
”
31
31
Risk management
Identifying, evaluating and managing the principal risks and
uncertainties facing the Group is an integral part of the way
Redcentric does business. There are policies and procedures
in place throughout the Group’s operations, embedded
within our management structure and as part of our normal
operating processes.
The principal risks and uncertainties identified by
management are set out below. These risks are not intended
to be an extensive analysis of all risks that may arise in the
ordinary course of business or otherwise. The principal
financial and treasury risks are separately disclosed in note 3
to the financial statements.
COVID-19
The COVID-19 pandemic has created an unprecedented
and constantly changing challenge to all businesses with
no clear end point. Whilst overall the Group has a relatively
low risk, high visibility business model, which is adaptable to
homeworking, we believe the risks to the Group posed by the
COVID-19 pandemic are as set out below.
Trading risk
•
although the Group’s strong recurring revenues support
longer term visibility of sales, we have experienced some
customers deciding to defer large-scale IT projects until
some economic certainty returns. Reluctance to move
critical IT infrastructure during this period has, however,
also had a beneficial effect on levels of contract churn;
Liquidity risk
•
uncertainty remains around the wider economic impact of
the pandemic and customers’ ability to continue to trade
throughout the pandemic;
Risk of loss of efficiency
•
•
the short-term disruption of moving people from offices
to working from home;
lower productivity at home due to poorer connectivity,
less communication between team members and possible
distractions such as family;
• the demotivational effect of general anxiety and concern;
•
•
•
the need to establish new client communication channels
with clients who are also working remotely;
team members being incapacitated or having to care for
other family members;
the slowdown in recruitment, although this is likely to be
partially offset by lower attrition;
32
Risk to IT & security
•
•
a possible breach of IT security through remote working,
although robust measures have been taken to mitigate
this risk;
the IT team being less able to respond efficiently and
promptly to regular hardware and software problems
due to the nature of remote working;
•
loss of capacity in the IT team due to illness.
Mitigating activities
The duration and extent of the economic consequences
of the pandemic are currently unknown and this makes
predicting future demand for the Group’s offerings difficult.
However, the Board believes that the Group is well placed
to withstand the current challenges and risks. The Group’s
IT systems are sufficiently flexible to enable remote working
by the majority of colleagues both in the UK and India.
During March, in close co-operation with colleagues, we
moved to working from home across the Group with very
little disruption.
The Group continues to proactively work with its most
affected customers to provide payment support throughout
this difficult period. At the end of June 2020, the Group
had collected over 90% of the FY20 year-end trade debtor
balances and had experienced no significant bad debts.
Subsequent to the FY20 year-end, the Group’s bank facilities
were extended to 30 June 2022, with all terms and covenants
remaining the same until this date. On 17 July 2020 certain
amendments were made to the Group’s Facilities Agreement
with its lenders to allow for the impact of the Restitution
Scheme. The Group has in place a total facility of £47.5m,
comprising a revolving credit facility (RCF) of £17.5m, an
overdraft facility of £5.0m and a £5.0m asset financing
facility. In addition, the Group has access to a £20.0m
accordion facility.
Market and economic conditions
Market and economic conditions are recognised as one of
the principal risks in the current trading environment. This risk
is mitigated by the monitoring of trading conditions and the
constant search for ways to achieve new efficiencies in the
business without impacting levels of service.
Strategic reportAnnual Report and Accounts 2020 A critical element of the Group’s operating methodologies
and procedures is to mitigate such risks through the careful
construction, maintenance and management of its own
infrastructure. All networks and data centres have fully
resilient fail-over procedures with regular testing of back-up
and recovery plans.
FCA Investigation
The Company reached a settlement with the FCA in
connection with the FCA Investigation, which was announced
on 26 June 2020. This concludes the long running
investigation and removes significant uncertainty and costs
for the Group. It also enables management to focus solely
on the business, reopens FCA regulated markets and
should remove caution from new logo customers who are
considering transferring their mission critical IT infrastructure
to the Group.
As part of the settlement agreed with the FCA, the
Company agreed to the Restitution Scheme, whereby it will
pay restitution to net purchasers of ordinary shares in the
Company between 9 November 2015 and 7 November 2016.
Each potential claimant under the Restitution Scheme who
goes on to receive a restitution payment is required to waive
any and all claims they may have against the Company in
relation to any matters arising out of or connected with the
matters referred to in the final notice issued by the FCA on
26 June 2020.
Risk management (continued)
Reliance on key personnel and management
The success of Redcentric is dependent on the services of key
management and operating personnel. The Board believes
that the Group’s future success will depend largely on its ability
to retain and attract highly skilled and qualified personnel, and
to expand, train and manage its employee base. There can be
no guarantee that suitably skilled and qualified individuals
will be retained or identified and employed. If the Group fails
to retain or recruit the necessary personnel, or if the Group
loses the services of any of its key executives, its business
could be materially and adversely affected.
Competition
Redcentric operates in a highly competitive marketplace and,
while the Board believes that the Group enjoys significant
strengths and advantages in competing for business, some
of the competitors are much larger with considerable scale
that could allow them to offer similar services for lower prices
than the Group would be prepared to match. Competitors
could therefore materially adversely impact the scale of the
Group’s revenues and its profitability. The Group monitors
competitors’ activity and constantly reviews its own services
and prices to ensure a competitive position in the market
is maintained.
Technology
The market for Redcentric’s services is in a state of constant
innovation and change. The Group actively participates in
a number of industry-wide forums and devotes significant
resource to the development of new services, ensuring new
technologies can be incorporated and integrated with the
Group’s core services. The nature of the Group’s services
means that they are exposed to a range of technological
risks, such as viruses, hacking, and an ever-changing
spectrum of security risk. The Group maintains constant pro-
active vigilance against such risks and maintains membership
of some of the highest levels of security accreditation as part
of the service it offers its customers.
Infrastructure failure
The Board believes that one of the key differentiators that
the Group offers is that its services are provided over its
own controlled and managed infrastructure, such as its own
networks and data centres. Whilst this provides customers
with comfort around resilience and reliability, the Group is
also exposed to risks of infrastructure failure.
33
Strategic reportAnnual Report and Accounts 2020 Corporate responsibility
Colleagues
Our colleagues are central to the continued success of our business and are focused on delivering outstanding services and
solutions to our customers and partners. Through 2019 and 2020 we have continued to reshape our organisation to ensure
we align our people and resources against our key priorities and continue to identify opportunities for efficiency in all areas of
the business.
Feedback from our customers about our people and the support they receive remains strong across all areas of the business and
we thank each and every colleague for their support and contribution over the last twelve months. This applies especially so to
the outstanding way our colleagues responded to the COVID-19 pandemic, transitioning seamlessly to working from home whilst
ensuring we maintained high levels of service and support for our customers at a time when they needed it most.
Having a say on what matters
Giving our colleagues the opportunity to have their say is critical and will drive business outcomes for us. By listening hard
to our colleagues and responding, we believe we can ensure we focus on addressing those areas that make a difference to
our colleagues and our customers. We have developed a Group-wide action plan in response to some of the key themes
identified as a result of our first colleague survey for a number of years, which has focused on increased working flexibility,
the development of our new vision, mission and values to align all colleagues and the introduction of a Group-wide online
objectives and feedback system. We have also re-launched our online learning management system in response to feedback
that our colleagues would like to see an increased focus on both development within their existing roles and support for their
future careers. Communication was another key theme highlighted within the survey and we will continue to evolve our internal
communications strategy and our internal ways of working to ensure all colleagues continue to be engaged and involved in our
business direction.
Equality and diversity
Creating a diverse, inclusive and great place for our colleagues to work is top of Redcentric’s people agenda.
Redcentric actively supports the principle of equal opportunities in employment and is committed to ensuring that individuals
are treated fairly, with respect and are valued. Redcentric opposes all forms of unlawful or unfair discrimination on the grounds
of colour, race, religion or belief, nationality, ethnic or national origin, sex, gender reassignment, sexual orientation, marital or
civil partner status, age or disability (the “Protected Characteristics”).
It is important to Redcentric that no one receives less favourable treatment or is disadvantaged on any of the above grounds.
Every possible step is taken to ensure that individuals are treated equally and fairly and that decisions on recruitment and
selection and opportunities for training and promotion are based solely on objective and job-related criteria.
Gender diversity
The average number of employees employed during the year was as follows:
Executive Directors
Operating Board
Senior managers
Other employees
Total average headcount
Male
Female
Total
2
4
11
342
359
0
2
3
98
103
2
6
14
440
462
34
Strategic reportAnnual Report and Accounts 2020 Corporate responsibility (continued)
Gender pay report
Our gender pay report at the snapshot date of 5 April 2019 showed that the overall difference between men and women’s
earnings at Redcentric was 25% (mean) or 18% (median), based on hourly rates of pay. Like most organisations in our industry,
the primary reason for our gender pay gap is an imbalance of male and female colleagues at different levels across the
organisation. This is something we are committed to changing moving forward. Over the last twelve months we have seen
an increase in the number and percentage of females within our organisation overall, which is a positive step forward;
however 62% of females are still within the lowest two pay quartiles which has negatively impacted our gender pay gap in the
short term. We are confident that this will change as we continue to focus on development and progression opportunities for
the future.
Apprenticeship programme
We have maintained our commitment to investment in apprentice programmes across differing areas of our business both
for new joiners into our business and existing colleagues. Programmes have focused on building a pipeline of talent into our
business to support our customer services function and we have started working closely with local schools and apprentice
providers to increase visibility of these opportunities. This is an area we are excited to continue growing and developing.
Our first Future Leaders Programme will be concluding later in 2020 whereby a number of internal colleagues will gain formal
management accreditations and we will be launching a second cohort of this programme later in FY21.
We are also working closely with local schools and colleges to support work experience opportunities and educational events.
Share scheme
The Group believes that having an effective employee share ownership programme helps to align colleagues’ interests with
shareholders’ and provides an effective tool for attracting, retaining and motivating staff. In November 2014 the Group
launched an HMRC approved Redcentric plc Save As You Earn Option Plan where colleagues contribute a monthly amount
which is saved over three years to buy shares in the Company at a pre-determined price.
The most recent grant was made on 21 August 2019, with the Company granting options over a total of 488,342 ordinary
shares. These options are available for exercise from 1 October 2022, with an exercise price of 63.1p.
As at 31 March 2020, the following options were outstanding under the plan:
Grant date
Exercise
price (p)
Opening
options
Options
granted
Options
exercised
14 December 2015
30 August 2017
21 August 2019
Total
154p
63.0p
63.1p
n/a
25,122
949,398
-
974,520
-
-
488,342
488,342
COVID-19
-
(13,492)
-
Options
lapsed /
cancelled
(25,122)
(89,933)
(8,557)
Options
remaining
-
845,973
479,785
(13,492)
(123,612)
1,325,758
We have adapted our internal communications approach over the last few months to ensure we continue to engage with all
our colleagues both in the UK and Hyderabad with a specific focus on supporting mental health whilst working at home. We
are pleased to say that this change in approach has been well received with 98% of respondents to a recent survey confirming
they felt connected to their teams and the people they work with. Additional routes to provide support for mental health have
been identified and communicated.
We are also really pleased to confirm that as a business we have not made use of the government’s furlough scheme, choosing
instead to focus our colleagues on providing outstanding support for customers and accelerating the delivery of key strategic
objectives which will stand the business in good stead for the future.
35
Strategic reportAnnual Report and Accounts 2020 Corporate responsibility (continued)
Charitable activity
All colleagues are encouraged to take a day’s paid leave per year to undertake volunteering activity or raise funds for their
chosen charities.
On a corporate basis we also work closely with a number of charities including Macmillan Cancer Support, Sue Ryder and the
Kidney Cancer Support Network and we have donated over £10,000 to these charities over the last twelve months. We have
also worked in partnership with some of our customers to sponsor a number of charitable events.
We have also developed a national corporate social responsibility (“CSR”) strategy to support our key customers in their local
areas and will be rolling this out in the new financial year.
Health & safety
Redcentric is committed to maintaining high standards of health and safety. New starters receive health and safety training
through our learning management system during their induction period and refresher training is provided to all colleagues
every twelve months. No RIDDOR (Reporting of Injuries, Diseases and Dangerous Occurrences Regulations) accidents were
reported during the year.
Our response to the COVID-19 pandemic has clearly been a priority and we have been and remain committed to ensuring the
safety of all our colleagues and customers both now and in the future.
All colleagues who are able to have been working from home since 16 March 2020 and we have introduced guidelines for any
colleagues in the office and for any visitors to the office in line with the working safely during coronavirus guidelines. Engineers
visiting customer sites for essential activities have all been provided with PPE and have been given the appropriate tools to
conduct COVID risk assessments ahead of any site visits to ensure their ongoing safety.
Environmental management
Redcentric continues to hold the ISO 14001 Environmental Management System accreditation, maintaining its focus on the
impact of waste, travel and utility usage on the environment. ISO 14001 accreditation currently covers operations in the UK
only. The Group’s environmental policy outlines our commitment to improving our environmental performance, with key
objectives covering reduction in energy consumption, company travel and office consumables, across all of which we were able
to realise year on year comparison improvements.
36
Strategic reportAnnual Report and Accounts 2020 Corporate responsibility (continued)
Carbon footprint
In accordance with the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013, we report on our
greenhouse gas (“GHG”) emissions as part of the Strategic Report. As FY20 is the first year of the reporting, no comparative
figures have been provided.
The method used to calculate our emissions is based on the government’s Environmental Reporting Guidelines (2019),
including streamlined energy and carbon reporting guidance, and used the government GHG Conversion Factors for Company
Reporting (Full Set 2019 version 1.0). The reported emission sources include those which we are responsible for, as required
under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013, with the exception of the following
which were excluded from this report:
•
liquefied petroleum gas consumed by mechanical handling (small forklift truck) due to immateriality; and
• voluntary scope 3 emissions.
The emissions for FY20 have been externally verified by Energy Management Limited.
Year ended
31 March
2020
275
5,182
5,457
21,426
Scope 1
Location-based scope 2
Total emissions
Thousand tonnes of CO2e
Thousand tonnes of CO2e
Thousand tonnes of CO2e
Total energy consumption in the UK
Thousand kWh
The Strategic Report on pages 4 to 37 is signed on behalf of the Board by
Peter Brotherton
Chief Executive Officer
21 July 2020
37
Strategic reportAnnual Report and Accounts 2020 “
Redcentric is giving us a hugely
flexible and functional platform
which we can use as a springboard
to optimise both IT delivery and
care provision. It gives us the
perfect opportunity to reengineer
the front-end experience, to give
clinicians and healthcare staff a
desktop that actually works for
them and their patients.
”
38
Introduction to Governance
Introduction to Governance
The Board recognises the importance of high standards of corporate governance and integrity. It is committed to effective
corporate governance as the basis for delivering long-term value growth and for meeting shareholder expectations for
proper oversight and leadership of the business. I am responsible, as Chairman of the Board, for corporate governance within
Redcentric, and the Board is committed to maintaining a strong governance and ethical structure that supports and sustains
its decision making. We believe that having good corporate governance is fundamental to pursue success for the Group and
its stakeholders. As such, the Company has adopted the Quoted Companies Alliance Code for Small & Mid-sized Quoted
Companies 2018 (the “QCA Code”) as its benchmark for governance matters and we believe that we are in full compliance at
the date of this report.
This section of the Annual Report and Accounts sets out how the Group has applied and complies with the principles of the
QCA Code. We will continue to review and update our approach and will update our Corporate Governance statement in the
AIM Rule 26 section of the Group’s website.
Ian Johnson
Chairman
39
GovernanceAnnual Report and Accounts 2020 Corporate Governance
Governance
Principle
Application
Principle 1
Establish a
strategy and
business model
which promotes
long-term value
for shareholders
The Group’s business model and strategy is discussed within the Chief Executive’s Review on pages
11 to 15 and also on page 28.
Details of the key risks and challenges facing the Group and the high-level management of such
are outlined on pages 32 to 33. The Operating Board this year overhauled the risk register and
engagement of the Operating Board has been a key area of progress during the year. The risk
register is shared and refined with the Audit Committee and Board at key intervals in the year.
Principle 2
Seek to
understand and
meet shareholder
needs and
expectation
The Group is committed to engaging with its shareholders to ensure that the strategy and business
model are clearly shared and understood. The Board believes that the disclosures of this Annual
Report and Accounts provide information necessary for shareholders to assess the Group’s
performance, business model and strategy. Copies of the Annual Report and Accounts are issued
to all shareholders that have requested them and copies are also available on the Group’s website.
The Group’s half year report is also available on the Group’s website and the Group makes full use
of the website to provide information to the shareholders and other interested parties.
The Executive Directors of the Company are in regular contact with the Company’s shareholders
and brief the Board on feedback and any shareholder issues. In FY20, investor briefings and
roadshows were held at regular intervals, including following announcement of the preliminary and
interim results, and other ad-hoc one to one meetings with key investors and potential investors
were also held through the year.
There is also regular dialogue with shareholders through the Company’s corporate brokers, finnCap
Limited (and Numis Securities until January 2020), who keep the Company abreast of shareholder
expectations and reactions. Any reports from analysts that refer to the Company or cover the
sector are circulated to the Board to support their understanding of the views of the investment
community. finnCap, as broker, provides feedback directly to the Board from shareholder meetings
and events such as the investor day. An update on key shareholding changes and any relevant
investor sentiment is also provided in each Board report and Board meeting.
There is a dedicated investor relations contact email address should shareholders or investors wish
to contact the Company (investorrelations@redcentricplc.com) and the Company Secretary also
deals with a number of written queries throughout the year along with the Company’s registrar,
Link Asset Services.
The Chairman and other Non-Executive Directors will always make themselves available to
shareholders. The AGM is usually a key opportunity for this, with shareholders being given the
opportunity to raise questions during the AGM and the Board being available both prior to
and after the meeting for further discussion with shareholders. However, due to the COVID-19
pandemic, shareholders will regretfully not be able to attend the 2020 AGM. Details of the business
to be conducted at the 2020 AGM together with arrangements for the AGM due to the COVID-19
pandemic and what shareholders should do to vote by proxy are set out in a separate Notice of
Annual General Meeting. To ensure that shareholders have the ability to ask questions of the Board,
the Board shall accept any questions relating to the business being dealt with at the AGM to be
submitted by shareholders in advance to the Company. The Company will publish questions and
responses to any questions sent to investorrelations@redcentricplc.com on the Group’s website in
advance of the AGM.
The voting record at the Company’s general meetings is monitored and we are pleased that all
resolutions were passed by shareholders at the 2019 AGM.
40
GovernanceAnnual Report and Accounts 2020 Corporate Governance (continued)
Governance
Principle
Application
Principle 3
Take into account
wider stakeholder
and social
responsibilities
and their
implications for
long-term success
Principle 4
Embed effective
risk management,
considering both
opportunities
and threats,
throughout the
organisation
The Board recognises that the long-term success of the business relies on its customers and
colleagues as described on pages 11 to 15, 28 to 31 and pages 34 to 35 and that engagement with
these key stakeholders is fundamental to helping the Board make the best business decisions.
Colleagues
The dedication and skill of colleagues is fundamental to the Group’s operation and success and,
as such, we are committed to colleague engagement and listening to and acting on feedback from
colleagues. In FY20 a new HR Director was appointed to the Group to ensure it is a great place to
work and the first colleague engagement survey for many years was carried out to give colleagues
an opportunity to provide detailed and thorough feedback. As described on page 34, a Group-
wide plan has been developed in response to some of the themes identified through the survey,
including in relation to flexibility of working, the development of the Group’s new vision, mission
and values and the introduction of a Group-wide online objectives and feedback system.
The Group’s online learning management system has also been relaunched in response to feedback
that colleagues would like to see greater focus on development.
Other opportunities for colleagues to provide feedback include quarterly colleague briefing
sessions carried out by the Operating Board at various business locations to enable colleagues to
ask questions and raise issues and to provide colleagues with updates on the business. We continue
to evolve our internal communications strategy and internal ways of working to ensure colleagues
are engaged and involved.
As detailed on page 35 the Group also has in place a Save As You Earn Option Plan to enable
colleagues to become personally invested as shareholders of the Company.
In FY20 the Group made considerable investment in our working environments, taking on board
colleague feedback to refresh the main office in Harrogate, with new furniture, décor and the
introduction of a number of innovative “pods” for collaborative thinking and meeting.
Customers
The Group’s extensive customer services, which are detailed on the Group’s website at
www.redcentricplc.com/services , are core to the Group’s customer proposition and the Group is
in regular dialogue with its existing and potential customers in order that it may understand and
respond to their ongoing and future requirements.
As set out in the Audit Committee Report on page 48, the Board is committed to ensuring that risk
management forms part of the way the Group works and is embedded in the business. The risk
register of the Group has been overhauled in the year and is regularly reviewed by the Operating
Board before reporting to and review by the Board.
The Board has overall responsibility for the Group’s system of internal control and for reviewing its
effectiveness. The implementation and maintenance of the risk management and internal control
systems are the responsibility of the Operating Board. However, the internal control system is
designed to manage rather than eliminate risk and can therefore only provide reasonable and not
absolute assurance against material misstatement or loss. The Board considers that the internal
controls in place are appropriate for the size, complexity and risk profile of the Group. The principal
elements of the Group’s internal control system cover financial, operational and compliance controls
and include:
• close management of the day-to-day activities of the Group by the Executive Directors;
•
an established budgetary system with the preparation and approval of an annual budget by
the Board and regular monitoring and review of performance against budget, forecasts and
prior year;
41
GovernanceAnnual Report and Accounts 2020 Corporate Governance (continued)
Governance
Principle
Application
•
detailed monthly reporting to the Board (including financial information, performance against
budget and key performance and risk indicators) whereby the Executive Directors report on
significant changes to the business and external marketplace to the extent they represent
significant risk,
• an organisational structure that has clear reporting lines and delegated authorities;
•
management and monitoring of risk and performance at multiple levels throughout the Group;
•
strengthened finance and legal functions that maintain processes and systems to enhance
the control environment, including the control of expenditure, authorisation limits, purchase
ordering, sales order intake, contract review and approval; and
• the principle treasury related risks are documented and approved by the Board.
The Group has also worked hard over some time to attain a number of ISO accreditations, detailed
at www.redcentricplc.com/about-us/accreditations-frameworks/, and has a number of policies and
procedures in place in order to fulfil the requirements of and maintain these accreditations.
Principle 5
The composition of the Board is detailed on page 46.
Maintain the
board as a
well-functioning,
balanced team
led by the chair
The Board delegates specific responsibilities to the Board committees. The composition of the
committees and how they discharge their responsibilities can be found on pages 44, 48 and 49.
Part of the role of the Board’s Nomination Committee is to keep the composition of the Board
under review as the Group’s business evolves. It is the intention of the Board to diversify its
composition in due course where appropriate and where the opportunity arises. In October 2019,
the Company announced the appointment of Ian Johnson as Non-Executive Chairman as Chris
Cole stepped down. Ian has previously served on the boards of a number of public and private
companies and has a strong track record in building shareholder value. Chris Rigg also stepped
down as a Non-Executive Director in December 2019. The Company appointed Dean Barber as an
Executive Director and Chief Financial Officer in September 2019 and following the end of the year
announced his replacement on the Board and as Chief Financial Officer by David Senior. David has
been with the Group since 2017 and has been instrumental in building a strong finance team and
contributed to the commercial successes of the Group.
The Board is satisfied that it has an appropriate balance between independence and knowledge
of the Group to enable it to discharge its duties and responsibilities effectively. All Directors are
encouraged and expected to use their independent judgement and to challenge matters where
required, both strategic and operational.
The Executive Directors of the Company are employed on a full-time basis. Non-Executive Directors
are required to devote such time to the Group’s affairs as necessary to discharge their duties
and this may change from time to time. In addition to scheduled Board meetings, members are
required to attend other ad hoc Board meetings, committee meetings, the AGM, site visits, Board
dinners and any other business or general meetings as required. Board members are also required
to consider all relevant papers before each meeting and to devote additional time in respect of
preparation and ad hoc matters which may arise. Non-Executive Directors are required to obtain
the agreement of the Chairman before accepting additional commitments that may affect the time
that they are able to devote to their role as a non-executive director. Further details of external
appointments of the Board are included in their biographies on page 46. In addition to being
Non-Executive Chairman of the Company, Ian Johnson is Executive Chairman of Circassia plc and
Non-Executive Director of Ergomed plc. Ian has, nonetheless, been able to devote sufficient time to
the Group to date and the Board will continue to monitor this.
42
GovernanceAnnual Report and Accounts 2020 Corporate Governance (continued)
Governance
Principle
Application
Principle 6
Ensure that
between them
the directors have
the necessary
up-to-date
experience, skills
and capabilities
Details of the number of regular scheduled meetings of the Board and committees, together with
the attendance record for each Board member, are set out on page 45.
The Board recently concluded an assessment of its performance and more detail is provided below
against Principle 7.
Directors’ details and biographies are on page 46. The Board considers that it has sufficient skills
and experience to enable it to execute its duties and responsibilities effectively given the nature
and size of the Group. As mentioned above, the appointment of Ian Johnson and David Senior
to the Board has extended the breadth of experience on the Board and enhanced its capabilities.
Directors are responsible for ensuring their continuing professional development to maintain their
effective skills and knowledge.
As part of the Board performance assessment recently concluded, details of which are set out
below, each Board member provided information on their individual skills and experience in
areas relevant to the Group. This exercise indicated a high level of capability and also provided
insight on additional areas that could potentially form part of the specification for any future Board
appointments.
The Board receives monthly reports on the Group’s operational and financial performance as
mentioned above, and formal agendas and reports are also circulated to the Board in advance
of meetings. The Board has access to the advice and services of the Company Secretary, who is
responsible for ensuring that Board procedures are followed and applicable rules and regulations
are adhered to. Directors are able to obtain further advice or seek clarity on issues raised in reports
or at meetings from within the Group or from external sources. The Board also has a procedure
whereby any director may seek, through the Company Secretary, independent professional
advice in furtherance of their duties, if necessary, at the Group’s expense. Stephen Vaughan is the
Company’s Senior Independent Director and provides a sounding board for the Chairman and also
serves as an intermediary for the other directors where required.
External advisers or consultants have been engaged by the Board in respect of the FCA
Investigation and the implementation of the Restitution Scheme, both being significant matters; by
the Nomination Committee in relation to the appointment of a new Non-Executive Chairman; and
by the Remuneration Committee in relation to Executive and senior management remuneration
arrangements as described in the Directors’ Remuneration Report.
On appointment to the Board, new directors receive a tailored induction pack and introductions to
relevant personnel within the Group.
Principle 7
Evaluate board
performance
based on clear
and relevant
objectives,
seeking
continuous
improvement
The Board has recently carried out its first evaluation in a number of years. The assessment was
internally facilitated and comprised the following elements:
•
a questionnaire completed by every Board member covering Board and Committee structure,
processes, agendas and priorities. Each Board member’s assessment of their individual
performance and feedback on each other was also sought. The questionnaire was based on one
designed by external consultants with considerable experience of Board reviews, but tailored to
meet the specific circumstances of the Group;
•
completion of a skills matrix by each Board member, as referred to under Principle 6 above, to
identify areas of expertise on the Board and additional areas that the Board could consider in
relation to future appointments;
•
a Board discussion facilitated by the Company Secretary on the outputs of the questionnaire and
skills matrix.
43
GovernanceAnnual Report and Accounts 2020 Corporate Governance (continued)
Governance
Principle
Application
The processes identified a number of actions which the Board believes will assist in improving Board
performance and these will be implemented during the year, including:
•
increasing the number of scheduled board meetings to be held in the year;
• agreeing revised timetables for distribution of papers in advance of Board meetings; and
• ensuring that there is robust succession planning in place for senior roles.
Principle 8
Promote a
corporate culture
that is based on
ethical values and
behaviours
The Board aims to lead by example with respect to promoting a healthy corporate culture and
ensuring that ethical values and behaviours are embedded in the business. The processes in place
for decision making which are documented in its Committee terms of reference, the Company’s
share dealing code and the requirement for regular disclosure of interests are all examples of
processes which require high standards of behaviour from the Board.
Employment policies adopted by the Group, such as its whistleblowing and anti-bribery policies,
assist in embedding a culture of ethical behaviour and the values set out in its corporate social
responsibility statement and Modern Slavery Act statement also reinforce this culture.
The Group is proud that it works closely with a number of charities including Macmillan Cancer
Support, Sue Ryder and the Kidney Cancer Support Network and that it has donated over £10,000
to these charities over the past year. It has also worked in partnership with customers to sponsor a
number of charitable events.
Principle 9
Maintain
governance
structures and
processes that
are fit for purpose
and support good
decision-making
by the board
The business and management of the Group are the collective responsibility of the Board. The
Board meets at least six times a year in accordance with its scheduled meeting calendar and this
schedule is supplemented with additional meetings as and when required. The attendance by each
Board member at meetings held in the year is shown in the table below.
At each scheduled meeting, the Board considers and reviews the trading performance of the
Group. The Board and its Committees receive appropriate and timely information prior to each
meeting in accordance with a reporting timetable agreed with the Board and Operating Board.
A formal agenda is agreed with the Chairman for each meeting and papers are distributed several
days ahead of meetings taking place.
The Board has a formal written schedule of matters reserved for its review and approval including
approval of the annual budget, major capital expenditure and interim and annual results. All specific
actions arising are documented following each Board and Committee meeting, followed up by the
Executive Directors and Company Secretary and then reviewed at the next meeting.
Board committees
The Board is supported by the Audit, Nomination and Remuneration Committees. A report on
the composition, responsibilities and key activities of the Audit Committee are set out in the Audit
Committee Report and in the Directors’ Remuneration Report for the Remuneration Committee.
The Nomination Committee consists of Ian Johnson (Chairman), Stephen Vaughan and Jon
Kempster. The Committee meets at least once a year and as required, particularly as and when
necessary to identify and nominate, for approval by the Board, candidates for Board appointments.
The Committee engages external consultants when appropriate to assist in the search for and
selection of new Board members. During the year, the Nomination Committee was involved in the
appointment of Ian Johnson as Non-Executive Chairman and David Senior as a Director and Chief
Financial Officer as detailed above.
The Committee has terms of reference in place which have been formally approved by the Board
and once a year it reviews the structure, size and composition (including diversity) of the Board,
considers succession planning and reviews the leadership needs of the organisation.
44
GovernanceAnnual Report and Accounts 2020 Corporate Governance (continued)
Governance
Principle
Application
Operating Board
Authority for execution of approved policies, business plan and daily running of the business is
delegated to the Executive Directors together with the rest of the Operating Board, which manages
and monitors operational performance across the business and ensures effective decision-making.
The Operating Board meets on a weekly basis and provides written reports to the Executive
Directors on a monthly basis shortly before each Board meeting to ensure that the Board has the
most up to date information possible
Principle 10
Communicate
how the company
is governed and
is performing
by maintaining
a dialogue with
shareholders and
other relevant
stakeholders
The Board communicates with its shareholders in a range of ways including through the Annual
Report and Accounts, interim and full-year results announcements, further trading updates where
required and appropriate, the AGM, investor roadshows and ono-to-one meetings with major
existing shareholders or potential new shareholders. The Group’s website (www.redcentricplc.com),
particularly the investor section of the site, also provides a range of corporate information for
shareholders, investors and the public, including all Company announcements and presentations.
Group performance information is communicated to colleagues, within the limitations imposed
by the Company’s public company disclosure obligations, in a number of ways, including regular
colleague-wide email communications from the Executive Directors and Operating Board and the
quarterly colleague briefing sessions referred to above.
The following table details the attendance of the Board members at regular scheduled Board and Committee meetings held
during FY20.
Name
Ian
Johnson1
Stephen
Vaughan
Jon
Kempster
Peter
Brotherton
Dean
Barber 2
Chris Cole3
Chris Rigg4
Position
(at 31
March
2020)
Chairman
NED
NED
CEO
CFO
--
--
Main Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Total
Attended
Total
Attended
Total
Attended
Total
Attended
3
9
9
9
5
6
8
3
9
9
9
5
6
8
-
4
4
-
-
-
3
-
3
4
-
-
-
3
-
5
5
-
-
-
4
-
5
5
-
-
-
4
1
5
5
-
-
4
4
1
5
5
-
-
4
4
¹Appointed with effect from 17 October 2019
2Appointed with effect from 2 September 2019
3Resigned with effect from 17 October 2019
4Resigned with effect from 31 December 2019
45
GovernanceAnnual Report and Accounts 2020 Board of Directors
Non-Executive Directors
Executive Directors
Ian Johnson Independent Non-Executive Chairman
Peter Brotherton Chief Executive Officer
Appointment date: 28 November 2016. Peter served as
Chief Financial Officer of the Company from 28 November
2016 to 21 November 2018 and then as Interim Chief
Executive Officer from 22 November 2018 to 28 May 2019,
when he was appointed as Chief Executive Officer.
Experience and external appointments: Peter has over
25 years’ experience across a number of senior finance roles.
Peter’s two previous roles were as Chief Financial Officer of
Gametech and Chief Financial Officer at PKR Group. Prior to
those two roles, from 2011 to 2014, Peter was Chief Financial
Officer and then Chief Executive Officer of Meucci Solutions
NV. Meucci Solutions was an international telecommunications
and managed services business. During his time at Meucci
Solutions, the business saw strong sales and EBITDA growth
whilst also extensively reviewing its central financial control
function. Peter also had senior finance roles at Varla (UK)
Limited, Cell Structures Group plc and spent five years at
Kingston Communications plc, becoming Director of Finance.
Peter qualified as an ACA chartered accountant at KPMG.
Peter holds no external appointments.
David Senior Chief Financial Officer
Appointment date: 3 April 2020
Experience and external appointments: David served in
the role of Finance Director of the Group since 2017, prior to
his appointment as Chief Financial Officer. During his time with
the Group to date, David has been instrumental in building a
strong finance team and made a significant contribution to the
commercial successes of the Group over the last three years.
David is a chartered certified accountant with twenty years of
experience in finance, including in several senior positions
with Wolseley plc. David holds no external appointments.
Appointment date: 16 October 2019
Committee membership: Chairman of the Nomination
Committee and member of the Remuneration Committee
Experience and external appointments: Ian has served
on the boards of a number of public and private companies
and has a strong track record in building shareholder value.
He was founder and CEO of Biotrace International plc until
December 2006, Non-Executive Chairman of Celsis Group
Ltd from 2009 until 2015, Chairman of Cyprotex plc until
2016, Chairman of Quantum Pharma plc until 2017 and
Executive Chairman of Bioquell plc from 2016 until 2019. Ian
is currently also a Non-Executive Director of Ergomed plc, a
provider of specialised services to the pharmaceutical industry
and Executive Chairman of Circassia Pharmaceuticals plc, a
specialty pharmaceutical company.
Stephen Vaughan Independent Non-Executive Director
Appointment date: 13 June 2017 (and Senior Independent
Non-Executive Director since 24 July 2017)
Committee membership: Chairman of the Remuneration
Committee and a member of the Audit and Nomination
Committees
Experience and external appointments: Through his
career, Stephen has held a number of Executive and Non-
Executive roles focused on the technology sector. Until 2015,
Stephen was Chief Executive of Phoenix IT plc, the main-
market listed IT infrastructure services business, and since
then has been Non-Executive director of Mobica, a software
development company, and Chairman of NetNames, the
internet services and online brand management company.
He was previously Chief Executive Officer at Communisis
plc and Synstar plc. Stephen is also currently Non-Executive
Chairman of Progressive Equity Research Limited, the paid
for equity research house, and a Non-Executive Director of
Amino Technologies plc, technology provider of media and
entertainment solutions.
Jon Kempster Independent Non-Executive Director
Appointment date: 10 January 2017
Committee membership: Chairman of the Audit Committee
and a member of the Remuneration and Nomination
Committees
Experience and external appointments: Jon is an ACA
qualified chartered accountant and was previously the
Chief Financial Officer at Frasers Group plc, Utilitywise plc,
Wincanton plc, Low and Bonar plc, Linden Group plc and Fii
Group plc. He is also currently an Independent Non-Executive
Director of Ted Baker plc, the global lifestyle brand and Bonhill
Group plc, the digital media and events company.
46
GovernanceAnnual Report and Accounts 2020 “
We deployed Teams to our entire
workforce over a weekend.
This went down extremely well and
was an integral part in continuity for
our business during these difficult times.
From signing of the contract to
delivery, the turnaround was very quick.
You delivered what you said you
would and delivered ahead of what
you promised. From the IT team’s
perspective as well as for our users,
it was such a simple journey and exactly
how we’d like a new deployment to run.
”
47
Audit Committee Report
The Audit Committee Report which describes the work of
the Committee in the last year.
Governance
The Audit Committee consists of Jon Kempster, Chairman of
the Committee and the Senior Independent Non-Executive
Director, Stephen Vaughan. Chris Rigg also formed part of the
Committee until his retirement as a Non-Executive Director
from the Board on 31 December 2019.
The Committee meets at least three times a year at
appropriate intervals in the financial reporting and audit cycle,
and at other times during the year as agreed between the
members of the Committee or as required. The Executive
Directors are not members of the Committee but attend
Committee meetings by invitation, as necessary, to facilitate
its business. The Committee also meets the external auditor
at least once a year without management present, to discuss
their remit and any issues arising from the previous audit.
During the year, the Committee met four times. Attendance
details are provided on page 45.
Key responsibilities
The Committee’s terms of reference are available on the
Investor section of the Group’s website. In accordance with
the terms, the Committee’s responsibilities include:
•
•
•
•
•
•
monitoring the integrity of the financial statements of the
Group, including all formal announcements relating to
financial performance;
reviewing and reporting to the Board on significant
financial reporting issues and judgements contained in any
announcements of financial performance;
reviewing the effectiveness of internal financial controls
and internal control and risk management systems and the
need for an internal audit function;
reviewing the adequacy of arrangements for the raising
of concerns about possible wrongdoing, procedures
for detecting fraud and systems and controls for the
prevention of bribery;
the recommendation of, appointment, re-appointment,
and removal of the external auditors;
reviewing the scope and results of the external
annual audit by the auditors, their cost effectiveness,
independence and objectivity;
•
reviewing the nature and extent of any non-audit services
provided by the external auditors.
The Committee reports on all such matters to the Board.
Internal control and risk management
The Audit Committee supports the Board in reviewing the risk
management methodology and the effectiveness of internal
control. During the year, has Group has reviewed its approach
to risk assessment and overhauled its risk register with the
engagement of the Operating Board. The management of
the risk register is coordinated by the Chief Financial Officer
with regular reviews at Operating Board level and reporting
on key risks and mitigating actions to the Committee.
External audit
The Audit Committee approves the appointment and
remuneration of the external auditor and the Chief Financial
Officer monitors the level and nature of non-audit services
and specific assignments are flagged for approval by the
Audit Committee as appropriate. The Audit Committee
reviews non-audit fees and considers implications for the
objectivity and independence of the relationship with the
external auditors. The Committee maintains regular dialogue
with the external auditor on ways to improve the efficiency
and effectiveness of the external audit process.
The responsibilities of the Board and external auditor in
connection with the Group’s financial statements are set out
in the Statement of Directors’ Responsibilities and Auditor’s
Report respectively and details of the services provided by
and fees payable to the auditor are included in note 8 to the
Consolidated Financial Statements.
KPMG LLP were appointed as the Group’s auditors on
15 May 2017. There is an active, ongoing dialogue between
the Committee and the external auditor to ensure there is a
clear roadmap of actions to improve the effectiveness and
efficiency of the external audit process.
Significant reporting issues and judgements
Details of the significant estimates and judgements made in
connection with the preparation of the financial statements
are in note 1.25 to the Consolidated Financial Statements.
Jon Kempster
Chair of the Audit Committee
21 July 2020
48
GovernanceAnnual Report and Accounts 2020 Directors’ remuneration report
David Senior replaced Dean Barber as Chief Financial
Officer following the end of FY20 on 3 April 2020, and
his remuneration was reviewed and approved by the
Remuneration Committee as part of his appointment.
Basic salary and benefits
Basic salaries are reviewed on a discretionary basis.
The benefits provided for each Executive Director include:
I.
life assurance cover of 4 times salary;
II. private medical insurance for themselves, their spouse and
their children; and
III. a contribution to a private pension plan.
Performance-related bonus
The Remuneration Committee determines the criteria for the
award of performance bonuses for the Executive Directors in
advance of each year. The bonuses are non-pensionable.
In addition to the Long-Term Incentive Programme, the
Executive Directors participate in a special bonus scheme
which will pay out, in the event of a change of control, either
shares in the Company or an equivalent monetary value at
the change of control price, subject to the discretion of the
Remuneration Committee at the time and also subject to
an initial uplift requirement. Dean Barber’s participation in
this scheme lapsed upon his leaving the Group and David
Senior has now been included in this scheme. During the
year, the Remuneration Committee took external legal advice
(at a fee of £3,600) in relation to this change of control bonus
scheme and in particular in relation to the drafting of the
scheme wording.
Share options
Executive Directors participate in the Company’s share option
schemes and the Remuneration Committee approves the
granting of any share options.
The Remuneration Committee is chaired by Stephen Vaughan
as independent Non-Executive Director and Jon Kempster
and Ian Johnson, who are also independent Non-Executive
Directors. Ian Johnson was appointed as a member of the
Committee following Chris Rigg’s retirement from the Board
during the year. The Committee meets at least twice a year
and at other times during the year as agreed between the
members of the Committee. The Remuneration Committee
met five times during FY20. The attendance record for those
meetings is included on page 45.
Responsibilities
The Group is committed to maximising shareholder value
over time. Each year the Remuneration Committee reviews
the incentive and reward packages for the Executive Directors
to ensure that they are aligned with the Group’s strategic
objectives and financial performance and are appropriate
to attract, retain and motivate management behaviour in
support of the creation of shareholder value.
The Committee has formal terms of reference which can
be found in the investor section of the Group’s website.
The Committee makes recommendations to the Board,
within its terms of reference, on the remuneration and
other benefits, including bonuses and share options, of the
Executive Directors. The terms of reference also include
committee oversight of several other significant remuneration
matters beyond those of the Executive Directors, including
the remuneration and retention of key Operating Board
members. In considering remuneration for the year, the
Committee consulted with the Executive Directors about
its proposals. The Board sets the annual base fees payable
to the Non-Executive Directors and they do not receive any
additional benefits, nor are they eligible to participate in any
pension, bonus or share-based incentive arrangements.
Chief Executive Officer
Peter Brotherton (formerly Chief Financial Officer), who was
Interim Chief Executive Officer from 22 November 2018,
was appointed as permanent Chief Executive Officer on 28
May 2019. The remuneration package of the Chief Executive
Officer was reviewed and approved by the Remuneration
Committee on his permanent appointment.
Chief Financial Officer
Dean Barber was appointed as Chief Financial Officer with
effect from 2 September 2019 and his remuneration package
was reviewed and approved by the Remuneration Committee
as part of the recruitment process.
49
GovernanceAnnual Report and Accounts 2020 Directors’ remuneration report (continued)
Recruitment and promotion policy
The Committee proposes an Executive Director’s remuneration package for new appointments in line with the principles
outlined in the table below:
Element of
remuneration
Policy
Base salary
Base salaries are set by the Committee on appointment and then reviewed annually. In setting and
reviewing salaries, the Committee considers the responsibilities of the role, progression in the role,
individual performance, skills, experience and pay levels within the Group.
Benefits
Executive Directors are entitled to life assurance cover of four times salary and private medical insurance
for themselves, their spouse and their children.
Pension
Executive Directors are entitled to receive pension contributions from the Company.
Annual bonus
The Remuneration Committee determines, at the start of the financial year, the criteria for the award
of a discretionary annual performance bonus. Performance is measured over the full financial year and
appropriate clawback provisions are in place in relation to any payments made.
Long-term
incentives
Executive Directors are entitled to participate in the Company’s Long-Term Incentive Plan (LTIP) and Save
As You Earn (“SAYE”) Option Plan. The Remuneration Committee approves the granting of any share
options under the Long-Term Incentive Plan and the Board approves the issue of invitations to apply for
SAYE options.
Service contracts
The Chief Executive Officer and Chief Financial Officer have service contracts with a provision for termination notice period of
six months, increased to twelve months in the event of a takeover.
Non-Executive Directors have letters of appointment. Appointments can be terminated with six months’ notice. The
remuneration of the Non-Executive Directors takes the form of an annual fees which is not pensionable.
The details of the Executive Directors’ service contracts and Non-Executive Directors’ appointment letters are summarised below:
Date of appointment
Contractual
notice period
(months)
Length of service at
31 March 2020
Executive Directors
Peter Brotherton
Dean Barber
Non-Executive Directors
Ian Johnson
Jon Kempster
Stephen Vaughan
28 November 2016
2 September 2019
17 October 2019
10 January 2017
13 June 2017
Chris Cole (resigned 17 October 2019)
1 September 2014
Chris Rigg (resigned 31 December 2019)
21 January 2019
112 months in the event of a takeover.
61
61
6
6
6
6
6
3 years 4 months
7 months
5 months
3 years 2 months
2 years 9 months
5 years 1 month
11 months
The service contracts and letters of appointment continue in force until notice in writing is given by either the Company
or the Director.
50
GovernanceAnnual Report and Accounts 2020 Directors’ remuneration report (continued)
The Executive Directors’ salaries as at 31 March 2020 are set out in the table below:
Executive Directors
Peter Brotherton
Dean Barber
Salary 31 March
2020
Salary 31 March
2019
£000
£000
300
170
300
-
Chairman and Non-Executive Directors’ fees
The Board, within the limit authorised by the Company’s Articles of Association and following recommendation by the
Executive Directors, determines Non-Executive Directors’ fees. The Chairman receives a fee of £85,000 and the other
Non-Executive Directors receive a fee of £35,000, with an additional fee of £5,000 for chairing a Board committee.
Ian Johnson (appointed 17 October 2019)
Jon Kempster (Chair of Audit Committee)
Stephen Vaughan (Chair of Remuneration Committee)
Chris Cole (resigned 17 October 2019)
Chris Rigg (resigned 31 December 2019)
Annual fee
31 March 2020
Annual fee
31 March 2019
£000
£000
85
40
40
70
40
-
40
40
70
40
Directors may claim reasonable business expenses in accordance with the Group’s expenses policy and be reimbursed on the
same basis as all employees. The Group may reimburse business expenses which are in future classified as taxable benefits
by HMRC.
Total remuneration for the Chief Executive Officer
The table below shows the total remuneration figure for the Chief Executive Officer over a five year performance period.
The total remuneration figure includes bonus and benefits.
Year ended 31 March
2020
2019
2018
2017
2016
Executive
Peter Brotherton
Peter Brotherton
Chris Jagusz1
Chris Jagusz
Fraser Fisher2
Fraser Fisher
Fraser Fisher
Tony Weaver3
Total single figure
£000
489
100
207
154
209
369
266
120
1 Chris Jagusz was Chief Executive Officer until his resignation on 22 November 2019. Peter Brotherton was appointed interim Chief Executive Officer
at this time.
2 Fraser Fisher was Chief Executive Officer until his resignation on 20 October 2017. Chris Jagusz was appointed Chief Executive Officer at this time.
3 Tony Weaver was Chief Executive Officer until his resignation on 1 November 2016. Fraser Fisher was appointed Chief Executive Officer at this time.
51
GovernanceAnnual Report and Accounts 2020 Directors’ remuneration report (continued)
Single total figure of remuneration for Directors (audited)
The remuneration of the Directors in respect of the year was as follows:
Basic Salary,
allowances,
and fees
£000
Bonus
£000
Pensions
£000
Share-based
payments
Year ended
31 March
Total
Year ended
31 March
Total
£000
£000
£000
307
80
103
-
39
49
44
41
30
-
-
-
-
-
-
-
4
4
-
-
-
-
-
-
138
529
419
-
-
-
-
-
-
-
107
-
39
49
44
41
30
-
383
-
40
36
70
7
Executive
Peter Brotherton1
Dean Barber2
(appointed 2-Sept-19,
resigned 3-Apr-20)
Chris Jagusz3
(resigned 21-Nov-18)
Non-executive
Ian Johnson
(appointed 16-Oct-19)
Stephen Vaughan
Jon Kempster
Chris Cole
(resigned 16-Oct-19)
Chris Rigg
(resigned 31-Dec-19)
1Includes travel allowance of £7k. On 26 September 2019, Peter Brotherton exercised nil-cost options over 161,905 ordinary shares of 0.1p each.
2Includes car allowance of £4k
3 Any share-based payments issued to Chris Jagusz in FY19 lapsed upon his departure. The expense was therefore written back in FY19 and there was net nil
impact to the P&L.
52
GovernanceAnnual Report and Accounts 2020 Directors’ remuneration report (continued)
Executive Director’s share options in the Company (audited)
Details of share options in the Company held by the Directors during the year are as follows (audited):
Exercise
price (p)
Balance at
31 March
2019
Granted
Forfeited /
expired
Exercised
Peter Brotherton
Dean Barber
(a)
(b)
(c)
(d)
(e)
(f)
Nil
Nil
63
Nil
Nil
Nil
161,905
192,481
28,571
298,879
-
681,836
-
-
-
-
379,267
379,267
-
175,750
-
-
-
-
-
-
-
(161,905)
-
-
-
-
(161,905)
Balance at
31 March
2020
-
192,481
28,571
298,879
379,267
899,198
-
175,750
(a) The options were granted on 29 December 2017 under the Company’s LTIP and vested post the release of the Group’s
results for the year ended 31 March 2019.
(b) The options were granted on 29 June 2017 under the Company’s LTIP. The options will vest post the release of the Group’s
results for the year ended 31 March 2020 subject to the achievement of performance conditions related to the growth in
earnings per share.
(c) The options were granted pursuant to the Company’s HMRC approved SAYE Option Plan. These options are available for
exercise from 30 August 2020.
(d) The options were granted on 26 November 2018 under the Company’s LTIP. The options will vest post the release of the
Group’s results for the year ended 31 March 2021 subject to the achievement of performance conditions related to the
growth in earnings per share.
(e) The options were granted on 28 June 2019 under the Company’s LTIP. The options will vest post the release of the Group’s
results for the year ended 31 March 2022 subject to the achievement of performance conditions related to the growth in
share price.
(f) The options were granted on 3 September 2019 under the Company’s LTIP. The options will vest post the release of the
Group’s results for the year ended 31 March 2022 subject to the achievement of performance conditions related to the
growth in share price.
Directors’ interests in shares
The interests (both beneficial and family interests) of the Directors in office at the date of this report in the share capital of the
Company were as follows:
Interests in
ordinary shares at
31 March 2020
Interests in
ordinary shares at
31 March 2019
Interests in share-
based incentive
options
Executive
Peter Brotherton
Dean Barber
Non-Executive
Stephen Vaughan
Jon Kempster
105,000
-
20,000
10,249
53
20,000
-
20,000
-
899,198
-
-
-
GovernanceAnnual Report and Accounts 2020 Directors’ remuneration report (continued)
Remuneration policy for Executive Directors compared to other employees
The table below shows the movement in the salary, benefits and annual bonus for the Chief Executive Officer between the
current and previous financial year compared to that of the total amounts for all employees of the Group for each of these
elements of pay.
Chief Executive Officer
Salary
Benefits
Annual Bonus
Average of all employees
Salary
Benefits
Annual Bonus
Year ended
31 March 2020
£000
Year ended
31 March 2019
£000
300
11
80
36
2
1
300
12
40
33
2
1
Change
%
-
-8.3%
100%
9.1%
-
-
Relative importance of spend on pay
The table below shows the Group’s expenditure on shareholder distributions (including dividends) and total employee pay
expenditure. Additional information on the number of employees, total revenue and underlying profit has been provided
for context.
Year ended
31 March 2020
Year ended
31 March 2019
£000
20,230
2,731
462
87,485
20,744
£000
21,027
597
479
93,260
16,911
Change
%
-3.8%
+357.5%
-3.5%
-6.2%
+22.7%
Employee expenditure
Distributions to shareholders
Average number of employees
Revenue
Adjusted EBITDA
Share price
The market price of the Company’s shares on 31 March 2020 was 100p per share. The highest and lowest market prices during
the year were 115p and 70p respectively.
Stephen Vaughan
Chair of the Remuneration Committee
21 July 2020
54
GovernanceAnnual Report and Accounts 2020 Directors’ report
The Directors presents their annual report together with the audited financial statements for FY20.
Principal activity
The principal activity of the Group during the year was the supply of IT managed services. The Company is a holding company.
The Strategic Report on pages 4-37 contains a review of the business, future developments and the principal risks
and uncertainties.
Dividends
An interim dividend of 0.83p per ordinary share was paid in January 2020. The Directors remain committed to a progressive
dividend policy but given continued uncertainty resulting from the COVID-19 pandemic and the Restitution Scheme, the
Directors will not be recommending the payment of a final dividend in respect of FY20 to shareholders.
Substantial shareholders
As at 31 March 2020 and 30 June 2020 (being the latest practicable date before the publication of this report) the Company
had been notified of the following significant interests in 3% or more in its ordinary shares:
31 March 2020
31 March 2020
30 June 2020
30 June 2020
Number
%
Number
Coltrane Asset Management LP
Mrs Maria Eugenie Radziwill
Kestrel Investment Partners
Mr Richard Griffiths
Slater Investments
Harwood Capital Mgt Group
Eugenia II Investment Holdings
33,768,246
23,274,689
21,658,206
20,264,277
8,728,656
7,935,000
4,748,967
22.62
15.59
14.51
13.57
5.85
5.31
3.18
33,768,246
23,274,689
26,403,863
20,510,744
8,728,656
7,935,000
-
%
22.62
15.59
17.68
13.74
5.85
5.31
-
As of 13 July 2020, the Company’s issued share capital is 154,868,713 ordinary shares, pursuant to the admission of 5,558,000
new ordinary shares to trading as announced by the Company on 13 July 2020.
Directors and their interests
The following were Directors of the Company during the year and at the date of approval of these financial statements:
•
Ian Johnson (appointed 16 October 2019)
• Peter Brotherton
• Dean Barber (appointed 2 September 2019, resigned 3 April 2020)
• David Senior (appointed 3 April 2020)
• Jon Kempster
• Stephen Vaughan
• Chris Cole (resigned 16 October 2019)
• Chris Rigg (resigned 31 December 2019)
Details of Directors’ remuneration, service agreements and interests in the share capital of the Company are provided in the
Directors’ Remuneration Report on pages 49, 50 and 53. Details of the Directors’ contracts, remuneration and share options
granted are also set out in the Directors’ Remuneration Report, on pages 50 to 53..
55
GovernanceAnnual Report and Accounts 2020 Directors’ report (continued)
Relevant Directors will retire in accordance with the terms of the Articles of Association of the Company and, being eligible, will
offer themselves for re-election at the forthcoming AGM.
Directors’ indemnities and liability insurance
As permitted by the Articles of Association, the Directors have the benefit of an indemnity which is a qualifying third-party
indemnity provision as defined by section 234 of the Companies Act 2006. The indemnity was in force throughout FY20 and
is currently in force. The Company also purchased and maintained Directors’ and Officers’ liability insurance throughout the
financial year in respect of itself and its Directors.
Employees
The Group’s employment policies are designed to ensure that they meet the statutory, social and market practices where the
Group operates. The Group systematically provides colleagues with information on matters of concern to them (including
through Group-wide announcements and roadshows), consulting them or their representatives regularly (including through
colleague forums, roadshows and the colleague survey), so that their views can be considered when making decisions that are
likely to affect their interests. Colleague involvement in the Group is encouraged (including through employee share schemes),
as achieving a common awareness on the part of all colleagues of the financial and economic factors affecting the Group plays
a major role in maintaining its relationship with colleagues.
The Group is committed to employment policies, which follow best practice, based on equal opportunities for all colleagues,
irrespective of sex, race, colour, disability or marital status. The Group gives full and fair consideration to applications for
employment for disabled persons, having regard to their aptitudes and abilities. Appropriate arrangements are made for
the continued employment and training, career development and promotion of disabled persons employed by the Group. If
colleagues become disabled, the Group continues employment, either in the same or an alternative position, with appropriate
retraining being given if necessary.
For further information on our colleagues see pages 34 to 37 of our Corporate Responsibility statement.
Going concern
The Group’s activities and an outline of the developments taking place in relation to its services and marketplace are
considered in the strategic report on pages 4 to 37. A commentary on the revenue, trading results and cash flows is provided
in the financial review on pages 18 to 23.
Note 3 to the financial statements sets out the Group’s financial risks.
The Group is forecast to be profitable and is cash generative with high and continuing levels of recurring revenue and high
levels of cash conversion expected for the foreseeable future.
The Group has in place a total bank funding facility of £47.5m, comprising a revolving credit facility of £17.5m, an overdraft
facility of £5.0m and a £5.0m asset financing facility. In addition, the Group has access to a £20.0m accordion facility.
Subsequent to the year-end, these facilities were extended to 30 June 2022, with all terms and covenants remaining the same
until this time. On 17 July 2020, certain amendments were made to the Group’s facilities agreement with its lenders to allow for
the impact of the Proposed Restitution Scheme.
The Directors have considered the going concern assumption and have undertaken careful enquiry and reviewed available
financial information, including detailed projections of profitability and cash flows for the next two years. The Directors have
also considered the impact of COVID-19 and have modelled a number of stressed scenarios to evaluate the potential future
impact on the business. Under all scenarios the Group’s resilient business model, high recurring revenues and strong balance
sheet stand it in good stead to weather the pandemic. The Directors have concluded that no material uncertainty over going
concern exists as, even under the most severe stress test, there is sufficient liquidity and no projected breach of banking
covenants. It is therefore appropriate to continue to adopt the going concern basis of accounting in the preparation of the
consolidated and Group financial statements.
56
GovernanceAnnual Report and Accounts 2020 Directors’ report (continued)
Purchase of own shares
The authority to make purchases of the Company’s shares on its behalf was given by resolution of the shareholders at the
Company’s 2019 AGM. Details of the share buybacks made during the year are provided in note 24 of the financial statements.
The Board announced shortly after the end of FY20 that the programme would be temporarily halted until such time as the
outlook around COVID-19 becomes more certain.
Annual General Meeting
The 2020 AGM will be held at Lifeline House, 80 Clifton Street, London EC2A 4HB at midday on 16 September 2020, although
due to the COVID-19 pandemic, shareholders will regrettably not be able to attend the AGM. The notice convening the AGM
to be held on 16 September 2020, together with arrangements made for the AGM due to the COVID-19 pandemic and what
shareholders should do to vote by proxy, are contained in a separate circular to shareholders and on the Group’s website at
www.redcentricplc.com/investors/shareholder-documents/ .
Corporate governance
The Group’s statement on corporate governance can be found in the Corporate Governance section of this Annual Report and
Accounts and which forms part of this Directors’ Report and is incorporated by reference.
The Group’s financial risk management objectives and policies are described in note 3 to the financial statements.
Disclosure of information to the auditor
The Directors of the Company at the date of approval of these financial statements confirm, as far as they are aware, that
there is no relevant audit information of which the auditor is unaware. The Directors have individually confirmed that they have
taken all reasonable steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit
information and to establish that it has been communicated to the auditor.
Subsequent events
Following the end of FY20, the Group’s existing bank facilities were extended to 30 June 2022, with all terms and covenants
remaining the same until this date. On 17 July 2020 certain amendments were made to the Group’s facilities agreement to
allow for the impact of the Restitution Scheme.
The Company announced on 26 June 2020 that is has reached a settlement with the FCA in connection with the FCA
Investigation. The FCA confirmed that the Company will not be subject to a financial penalty but, as part of the settlement,
the Company agreed to implement the Restitution Scheme under which it will pay restitution amounting up to approximately
£11.4m to net purchasers of ordinary shares in the Company between 9 November 2015 and 7 November 2016. The
Restitution Scheme will be funded partly by the Group’s own cash resources and partly through the placing and subscription of
ordinary shares, amounting to £5.775m at a price of 110p per ordinary share, which were completed on 14 July 2020 following
the general meeting of the Company held on 13 July 2020.
There have been no other significant events between the balance sheet date and the date of approval of these accounts.
By order of the Board
Harn Jagpal
Company Secretary
21 July 2020
57
GovernanceAnnual Report and Accounts 2020 Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and Accounts and the Group and Company financial statements
in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and Company financial statements for each financial year. As required
by the AIM Rules for Companies issued by the London Stock Exchange they are required to prepare the Group financial
statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as
adopted by the EU) and applicable law and have elected to prepare the Company financial statements in accordance with
UK accounting standards and applicable law (UK Generally Accepted Accounting Practice), including FRS 101 Reduced
Disclosure Framework.
Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and Company and of their profit or loss for that period. In preparing each of the
Group and Company financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable, relevant, reliable and prudent;
•
for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
•
•
•
for the Company financial statements, state whether applicable UK accounting standards have been followed, subject to
any material departures disclosed and explained in the financial statements;
assess the Group and Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern; and
use the going concern basis of accounting unless they either intend to liquidate the Group or the Company or to cease
operations or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s
transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure
that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due
to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets
of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report and a Directors’
Report that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Group’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
By order of the Board
Harn Jagpal
Company Secretary
21 July 2020
58
GovernanceAnnual Report and Accounts 2020 “
It’s our obsession with customer
experience and commitment
to delivering a consistently high
quality service that sets Addison
Lee Group apart. So, we look for
partners that share this passion
and have a similar commitment.
Redcentric has demonstrated
that they can fit the bill.
”
59
59
Independent auditor’s report
to the members of Redcentric plc
1.Our opinion is unmodified
We have audited the financial statements of Redcentric plc (“the Company”) for the year ended 31 March 2020 which
comprise the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Statement of
Changes in Equity, Consolidated Statement of Financial Position, Consolidated Cash Flow, Company Balance Sheet, Company
Statement of Changes in Equity, and the related notes, including the accounting policies in note 1.
In our opinion:
• The financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at
31 March 2020 and of the Group’s loss for the year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards
as adopted by the European Union;
• the parent Company financial statements have been properly prepared in accordance with UK accounting standards,
including FRS 101 Reduced Disclosure Framework; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Group in
accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed entities. We believe that the
audit evidence we have obtained is a sufficient and appropriate basis for our opinion.
Overview
Materiality: group financial
statements as a whole
£518,000 (2019:£524,000)
0.60% (2019:0.56%) of Group revenue
Coverage
99% (2019:98%) of total profits and losses that make up Group loss before tax
Key audit matters
Event driven
Recurring risks
vs 2019
New: Outcome of FCA Investigation (Group and Parent Company)
s
Going concern
Provision for credit notes
The impact of uncertainties due to the UK exiting the European Union
on our audit
60
Financial statementsAnnual Report and Accounts 2020
Independent auditor’s report
to the members of Redcentric plc (continued)
2. Key audit matters: including our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified
by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
In arriving at our audit opinion above, the key audit matters, in decreasing order of audit significance, were as follows:
The risk
Our response
Outcome of FCA
Investigation
(restitution provision
£11.4 million)
Refer to page 48
(Audit Committee Report),
page 82 (accounting policy)
and note 4 on page 110
(financial disclosures).
Accounting judgement and
subjective valuation:
In March 2017 the Financial Conduct
Authority (‘FCA’) notified the Company that
it had commenced an investigation following
the historic overstatement of net assets
and profits as described in the Company’s
announcements on 7 November 2016,
13 and 23 December 2016.
On 26 June 2020, the FCA issued a final
notice which constitutes a public censure.
The FCA final notice found that Redcentric
plc committed market abuse, but determined
that it would not be appropriate to issue
a penalty on the basis that the company
has implemented a scheme to provide
compensation to those purchasers
of the company’s shares who suffered
losses as a result of the market abuse (the
‘Restitution Scheme’ as described in note 2).
Judgement is required in assessing the
nature and timing of amounts recognised and
disclosure requirements in relation to
the Restitution Scheme.
Significant estimates, including the number
of relevant net share purchases in the
relevant period and proportion of shares
vs cash compensation, are made in valuing
the provision.
Furthermore, the effect of these matters
is that, as part of our risk assessment, we
determined that any amounts recognised
in providing for the cost of the Restitution
Scheme has a high degree of estimation
uncertainty, with a potential range of
reasonable outcomes greater than our
materiality for the financial statements as a
whole, and possibly many times that amount.
The financial statements (note 2) disclose the
sensitivity estimated by the Group.
61
Our procedures included:
• Review of documentation: Inspected
Board and Audit Committee meeting
minutes and correspondence with the
company’s legal advisors and with the
FCA to understand the status of the
investigation and to identify the timeline of
events leading to the issuance of the FCA
final notice and the Restitution Scheme;
• Personnel interview: Held meetings
with management, those charged with
governance and the company’s legal
advisors to further understand the status
of the investigation and to identify the
timeline of events leading to the issuance
of the FCA final notice and the Proposed
Restitution Scheme;
• Benchmarking assumptions: Evaluated
and compared the Group’s and company’s
assumptions to externally derived data in
relation to key inputs such as the quantum
of net purchasers of the company’s
shares who suffered losses as a result
of the market abuse, the proportion of
compensation to be paid in cash or shares
and the expected costs of administering
the scheme;
• Sensitivity analysis: Assessed the
sensitivity of the provision to changes
in assumptions such as the quantum of
relevant net purchases of shares and the
proportion of compensation to be paid in
cash or shares;
• Assessing transparency: Assessed the
adequacy of the Company’s disclosure
of the progress and conclusion of the
FCA Investigation.
Financial statementsAnnual Report and Accounts 2020 Independent auditor’s report
to the members of Redcentric plc (continued)
The risk
Our response
Going concern
Disclosure quality:
Our procedures included:
Refer to pages 74-75
(accounting policy).
The financial statements explain how the
Board has formed a judgement that it is
appropriate to adopt the going concern
basis of preparation for the Group.
That judgement is based on an evaluation
of the inherent risks to the Group’s
business model and how those risks might
affect the Group’s financial resources or
ability to continue operations over a period
of at least a year from the date of approval
of the financial statements.
The risks most likely to adversely affect the
Group’s available financial resources over
this period were:
• The level of external financing facilities
and the ability of the Group to operate
within the liquidity and covenant
parameters within these financing
facilities
• The impact of a depression in demand
and the risk of credit losses arising from
customers facing disruption as a result of
COVID-19.
There are also less predictable but realistic
second order impacts, such as the impact
of Brexit and the erosion of customer or
supplier confidence, which could result
in a rapid reduction of available financial
resources.
The risk for our audit was whether or not
those risks were such that they amounted
to a material uncertainty that may have
cast significant doubt about the ability to
continue as a going concern. Had they
been such, then that fact would have been
required to have been disclosed.
• Funding assessment: Assessed the committed
level of financing available to the Group and forecast
covenant headroom for at least the next 12 months
through consideration of the facility agreement. We
critically assessed the Directors’ forecasts, specifically
surrounding the Group’s ability to meet covenants
in place. We assessed the level of funding available
to the Group taking into account cash resources
at the balance sheet date and the impact of post
balance sheet events such as performance to date,
the bank facility extension completed in June 2020;
the share placing completed on 13 July 2020 and the
estimated cash payments required in respect of the
Restitution Scheme announced on 26 June 2020;
• Historical comparisons: Analysed the Directors’
previous projections against actual outcomes to assess
historical forecasting accuracy and assist our challenge
of the 2020/21 forecasts prepared by the Directors;
• Key dependency assessment: Identified the
critical factors in determining whether there is a risk
of business failure based on our detailed knowledge
of the business and specific risk assessments for the
impact of COVID-19 and Brexit, taking input from the
Directors where appropriate;
• Sensitivity analysis: Considered sensitivities over
the level of available financial resources indicated
by the Group’s financial forecasts taking account
of reasonably possible (but not unrealistic) adverse
effects that could arise from these risks individually
and collectively, including the modelling of a period
of COVID-19 related disruption through to March
2021, after which point the forecast models a
gradual recovery;
• Evaluating directors’ intent: Evaluated the
achievability of the actions the Directors consider
they would take to improve the position should
the risks materialise. We considered the impact
of specific mitigations such as reductions in
operating expenditure;
• Assessing transparency: Assessing the
completeness and accuracy of the matters covered
in the going concern disclosure by evaluating the
reasonableness of risks and uncertainties specified by
the disclosure against our findings from our evaluation
of management’s assessment of going concern.
62
Financial statementsAnnual Report and Accounts 2020 Independent auditor’s report
to the members of Redcentric plc (continued)
The risk
Our response
Our procedures included:
• Test of detail: Assessed the basis and calculation of
the credit note provision against our knowledge of
the business and our understanding and evaluation of
the invoicing process;
• Historical comparisons: Evaluated the level of
credits notes raised against total revenue to assess
the appropriateness of the applied rate of credit
notes to total revenues in the year
• Test of detail: Assessed the level of post year-end
credit notes, to determine the extent to which the
provision is utilised post year end and the adequacy
of the year-end provision.
Provision for credit
notes (Provision:
£1.2 million; 2019:
£1.5 million)
Refer to page
83 (accounting
policy) and note
19 on pages
98-99 (financial
disclosures).
Processing error
The Group sells to a large customer
base. The Group has a history of issuing
invoices for the incorrect products or/
and amounts and hence has been issuing
material levels of credit notes to correct
these. At the period end, the Group
corrects for the issue of incorrect invoicing
by recording a credit note provision
against revenue and trade receivables.
The credit note provision is based on
the value of credit notes that the Group
expects to subsequently issue to correct
for the estimated unresolved invoicing
issues to date. Management generates
the credit note provision by assessing
historic levels of credit notes raised
against the related invoices amounts,
taking into account consideration
changes in the current period.
There is a risk that the credit note
provision recorded by the Group to
correct for the inaccurate invoicing
may be materially understated resulting
in revenue and trade receivables
being misstated.
63
Financial statementsAnnual Report and Accounts 2020 Independent auditor’s report
to the members of Redcentric plc (continued)
The risk
Our response
The impact of
uncertainties due
to the UK exiting
the European
Union on our audit
Refer to page 11
(Chief Executive’s
review).
Unprecedented levels of uncertainty:
All audits assess and challenge the
reasonableness of estimates, in particular
as described in the appropriateness of
the going concern basis of preparation
of the financial statements (see above).
All of these depend on assessments
of the future economic environment
and the Group’s future prospects and
performance.
Brexit is one of the most significant
economic events for the UK and its effects
are subject to unprecedented levels of
uncertainty of consequences, with the full
range of possible effects unknown.
We developed a standardised firm-wide approach to
the consideration of the uncertainties arising from Brexit
in planning and performing our audits. Our procedures
included:
• Our Brexit knowledge: We considered the directors’
assessment of Brexit-related sources of risk for the
Group’s business and financial resources compared with
our own understanding of the risks. We considered the
directors’ plans to take action to mitigate the risks;
• Sensitivity analysis: When addressing going
concern,and other areas that depend on forecasts, we
compared the directors’ analysis to our assessment of
the full range of reasonably possible scenarios resulting
from Brexit uncertainty and, where forecast cash flows
are required to be discounted, considered adjustments
to discount rates for the level of remaining uncertainty;
• Assessing transparency: As well as assessing
individual disclosures as part of our procedures on
going concern we considered all of the Brexit related
disclosures together, including those in the strategic
report, comparing the overall picture against our
understanding of the risks.
However, no audit should be expected to predict the
unknowable factors or all possible future implications
for a company and this is particularly the case in relation
to Brexit.
3. Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at £518,000 (2019:£524,000) determined with reference to a
benchmark of total revenues of £87.5million (2019:£93.3million) (of which it represents 0.6% (2019:0.56%)). We consider total
revenues to be the most appropriate benchmark as it provides a more stable measure year on year than Group loss before tax.
Materiality for the parent company financial statements as a whole was set at £517,000 (2019: £523,000), determined with
reference to a benchmark of total assets, of which it represents 0.5% (2019:0.5%).
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £25,900
(2019:£26,200), in addition to other identified misstatements that warranted reporting on qualitative grounds.
Of the Group’s 3 (2019:3) reporting components, we subjected 2 (2019:2) to full scope audits for Group purposes.
The components within the scope of our work accounted for the percentages illustrated opposite.
For the residual 1 component, we performed analysis at an aggregated Group level to re-examine of our assessment that
there were no significant risks of material misstatement within these.
The work on all 3 (2019:3) components was performed by the Group team.
The component materialities were £492,100 to £517,000 (2019 ranged from £422,000 to £523,000), having regarded the
mix of size and risk profile of the Group across the components.
64
Financial statementsAnnual Report and Accounts 2020 Independent auditor’s report
to the members of Redcentric plc (continued)
Total revenues
£87.5m (2019: £93.3m)
Group materiality
£518,000 (2019: £524,000)
£518,000
Whole financial statements materiality
(2019: £524,000)
£517,000
Range of materiality at 3 components
£492,100 to £517,000
(2019: £422,000 to £523,000)
Total revenues
Group materiality
£25,900
Misstatements reported to the audit committee
(2019: £26,200)
Group revenue
Total losses and profits that
make up loss before tax
Group total assets
100%
(2019 100%)
100%
100%
Full scope for Group audit purposes 2020
Full scope for Group audit purposes 2019
Specified risk-focused audit procedures 2019
Residual components
99%
(2019 98%)
98%
99%
65
99%
(2019 99%)
99%
99%
Financial statementsAnnual Report and Accounts 2020 Independent auditor’s report
to the members of Redcentric plc (continued)
4. We have nothing to report on going concern
The Directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the
Company or the Group or to cease their operations, and as
they have concluded that the Company’s and the Group’s
financial position means that this is realistic. They have also
concluded that there are no material uncertainties that could
have cast significant doubt over their ability to continue as a
going concern for at least a year from the date of approval of
the financial statements (“the going concern period”).
Our responsibility is to conclude on the appropriateness of
the Directors’ conclusions and, had there been a material
uncertainty related to going concern, to make reference to
that in this audit report. However, as we cannot predict all
future events or conditions and as subsequent events may
result in outcomes that are inconsistent with judgements that
were reasonable at the time they were made, the absence of
reference to a material uncertainty in this auditor’s report is
not a guarantee that the Group or the company will continue
in operation.
We identified going concern as a key audit matter (see
section 2 of this report). Based on the work described in our
response to that key audit matter, we are required to report
to you if:
• we have anything material to add or draw attention to
in relation to the directors’ statement in Note 1 to the
financial statements on the use of the going concern basis
of accounting with no material uncertainties that may cast
significant doubt over the Group and Company’s use of that
basis for a period of at least twelve months from the date of
approval of the financial statements.
We have nothing to report in these respects.
5. We have nothing to report on the other
information in the Annual Report
The directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does
not cover the other information and, accordingly, we do not
express an audit opinion or, except as explicitly stated below,
any form of assurance conclusion thereon.
Our responsibility is to read the other information and,
in doing so, consider whether, based on our financial
statements audit work, the information therein is materially
misstated or inconsistent with the financial statements or
our audit knowledge. Based solely on that work we have not
identified material misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
• we have not identified material misstatements in the
strategic report and the directors’ report;
• in our opinion the information given in those reports for the
financial year is consistent with the financial statements; and
• in our opinion those reports have been prepared in
accordance with the Companies Act 2006.
6. We have nothing to report on the other
matters on which we are required to report by
exception
Under the Companies Act 2006, we are required to report to
you if, in our opinion:
• adequate accounting records have not been kept by the
parent Company, or returns adequate for our audit have not
been received from branches not visited by us; or
• the parent Company financial statements are not in
agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by
law are not made; or
• we have not received all the information and explanations
we require for our audit.
We have nothing to report in these respects.
66
Financial statementsAnnual Report and Accounts 2020 Independent auditor’s report
to the members of Redcentric plc (continued)
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page
58, the directors are responsible for: the preparation of the
financial statements including being satisfied that they give a
true and fair view; such internal control as they determine is
necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to
fraud or error; assessing the Group and, parent Company’s
ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the
going concern basis of accounting unless they either intend
to liquidate the Group or the parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue our opinion in an auditor’s report. Reasonable assurance
is a high level of assurance, but does not guarantee that an
audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material
if, individually or in aggregate, they could reasonably be
expected to influence the economic decisions of users taken
on the basis of the financial statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities
8. The purpose of our audit work and to whom
we owe our responsibilities
This report is made solely to the Company’s members,
as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken
so that we might state to the Company’s members those
matters we are required to state to them in an auditor’s report
and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members, as a
body, for our audit work, for this report, or for the opinions
we have formed.
Johnathan Pass (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DA
21 July 2020
67
Financial statementsAnnual Report and Accounts 2020 “
Our partnership with Redcentric
has been pivotal to transforming
our whole telephony approach, with
class-leading technology and best
practice guidance helping us to
set a new standard in efficient call
handling, increasing both patient
satisfaction and staff morale.
”
68
Consolidated statement of comprehensive income
for the year ended 31 March 2020
Revenue
Cost of sales
Gross Profit
Operating expenditure
Adjusted EBITDA1
Depreciation
Amortisation of intangibles
Exceptional items
Share-based payments
Operating loss
Finance income
Finance costs
Loss on ordinary activities before taxation
Income tax credit / (expense)
Loss for the period attributable to owners of the parent
Other comprehensive income
Items that may be classified to profit or loss:
Currency translation differences
Total comprehensive loss for the period
Earnings per share
Basic loss per share
Diluted loss per share
Year ended
31 March
2020
Year ended
31 March
2019
Note
£000
£000
6
16
15
9
25
10
10
12
13
13
87,485
(32,297)
55,188
(63,925)
20,604
(8,814)
(7,449)
(12,516)
(562)
93,260
(36,895)
56,365
(56,650)
16,714
(7,330)
(7,392)
(1,911)
(366)
(8,737)
(285)
5
(1,881)
(10,613)
13
(10,600)
13
(1,091)
(1,363)
(604)
(1,967)
13
8
(10,587)
(1,959)
(7.14)p
(7.14)p
(1.32)p
(1.32)p
The notes on pages 74 to 106 are an integral part of these consolidated financial statements.
1 For an explanation of the alternative performance measures used in this report, please refer to page 25.
69
Financial statementsAnnual Report and Accounts 2020 Consolidated statement of financial position
as at 31 March 2020
Non-Current Assets
Intangible assets
Tangible assets
Deferred tax asset
Current Assets
Inventories
Trade and other receivables
Corporation tax receivable
Cash and short-term deposits
Total assets
Current Liabilities
Trade and other payables
Borrowings
Provisions
Non-current liabilities
Borrowings
Provisions
Total liabilities
Net assets
Equity
Called up share capital
Share premium account
Capital redemption reserve
Own shares held in treasury
Retained earnings
Total Equity
31 March
2020
31 March
2019
Note
£000
£000
15
16
17
18
20
21
23
21
23
24
24
24
68,867
38,467
1,482
108,816
891
23,261
346
3,710
28,208
137,024
(24,311)
(16,126)
(12,122)
(52,559)
(22,133)
(2,531)
(24,664)
(77,223)
75,802
18,133
142
94,077
357
21,907
196
7,206
29,666
123,743
(22,297)
(3,056)
(149)
(25,502)
(21,715)
(881)
(22,596)
(48,098)
59,801
75,645
149
65,734
(9,454)
(724)
4,096
59,801
149
65,588
(9,454)
-
19,362
75,645
The notes on pages 74 to 106 are an integral part of these consolidated financial statements.
The financial statements of Redcentric Plc (Registration Number 08397584) on pages 69 to 72 were approved by the Board on
21 July 2020 and are signed on its behalf by:
David Senior
Chief Financial Officer
70
Financial statementsAnnual Report and Accounts 2020 Consolidated cash flow statement
for the year ended 31 March 2020
Loss before taxation
Net finance costs
Operating loss
Adjustment for non-cash items
Depreciation and amortisation
Exceptional items
Share-based payments
Operating cash flow before exceptional items and movements in working capital
Loss on sale of fixed asset
Cash costs of exceptional items
Operating cash flow before changes in working capital
Changes in working capital
(Increase) / Decrease in inventories
(Increase) / Decrease in trade and other receivables
Increase / (Decrease) in trade and other payables
Cash generated from operations
Tax paid
Net cash generated from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment
Purchase of intangible fixed assets
Net cash used in investing activities
Cash flows from financing activities
Dividends paid
Share buy-back
Interest paid
Repayment of leases
Repayment of borrowings
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effect of exchange rates
Cash and cash equivalents at end of the period
Year ended
31 March
2020
Year ended
31 March
2019
Note
£000
£000
10
15,16
9
16
16
16
15
(10,613)
1,876
(8,737)
16,263
12,516
562
20,604
-
(817)
19,787
(534)
(1,779)
1,343
18,817
(660)
18,157
-
(3,943)
(290)
(4,233)
(2,731)
(724)
(1,825)
(5,127)
(7,000)
(1,363)
1,078
(285)
14,722
1,911
366
16,714
(42)
(1,668)
15,004
309
5,775
(1,467)
19,621
(1,873)
17,748
665
(4,665)
(564)
(4,564)
(597)
-
(1,044)
(1,918)
(8,500)
(17,407)
(12,059)
(3,483)
7,206
(13)
3,710
1,125
6,089
(8)
7,206
The notes on pages 74 to 106 are an integral part of these consolidated financial statements.
1 For an explanation of the alternative performance measures used in this report, please refer to page 25.
71
Financial statementsAnnual Report and Accounts 2020 Consolidated statement of changes in equity
for the year ended 31 March 2020
Share
Capital
Share
Premium
Capital
Redemption
Reserve
Own Shares
Held in
Treasury
Retained
Earnings
£000
£000
£000
£000
£000
Total
Equity
£000
Balance at 1 April 2018
Loss for the period
Transactions with owners
Share-based payments
Dividends paid (note 14)
Other comprehensive income
Currency translation differences
149
65,588
(9,454)
-
-
-
-
-
-
-
-
-
-
-
-
At 31 March 2019
149
65,588
Adjustment on initial application of IFRS 16
-
-
Adjusted as at 31 March 2019
149
65,588
(9,454)
-
(9,454)
Loss for the period
Transactions with owners
Share-based payments
Share buyback
Issue of new shares
Dividends paid (note 14)
Other comprehensive income
Currency translation differences
At 31 March 2020
-
-
-
-
-
-
-
-
-
146
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(724)
-
-
-
21,565
(1,967)
77,848
(1,967)
353
(597)
353
(597)
8
19,362
(2,260)
17,102
8
75,645
(2,260)
73,385
(10,600)
(10,600)
484
-
(146)
(2,731)
484
(724)
-
(2,731)
(13)
(13)
149
65,734
(9,454)
(724)
4,096
59,801
The notes on pages 74 to 106 are an integral part of these consolidated financial statements.
72
Financial statementsAnnual Report and Accounts 2020 “
Transforming our WAN
environment has given us
the security, availability and
quality we need at the heart
of our business to support our
future ambitions. We can now
push on with getting into the
vanguard of innovation.
”
7373
Notes to the consolidated financial statements
for the year ended 31 March 2020
1 Summary of significant accounting policies
Redcentric plc is a public limited company incorporated and
domiciled in England and Wales, whose shares are publicly
traded on the AIM division of the London Stock Exchange.
Redcentric plc was incorporated on 11 February 2013 and
admitted to AIM on 24 April 2013.
The principal accounting policies applied in the preparation
of these consolidated financial statements are set out
below. These policies have been applied consistently to
all periods covered.
1.1 Basis of preparation
The financial statements are prepared on a going concern
basis which the directors believe to be appropriate for the
following reasons.
The Group made a statutory loss before tax of £10.6m in
the year to 31 March 2020 (2019: loss of £2.0m) and had
net current liabilities of £24.4m at 31 March 2020 (2019: net
current assets of £4.1m). Whilst the Group made a loss in
the current financial year due to an £11.4m provision being
recorded in relation to the Restitution Scheme (see note
23). The Group is ordinarily profitable and has continued to
be cash generative. Net current liabilities at 31 March 2020
includes £9.7m (2019: £9.1m) of contract liabilities, which
does not represent expected cash outflows. Excluding this,
the Group has net current liabilities of £14.7m (2019: net
current assets of £13.2m). Net current liabilities at 31 March
2020 also includes a provision of £11.4m in respect of the
Restitution Scheme. Of the £11.4m provision, £5.8m will be
funded by the share placing which took place on 13 July
2020 (see note 30) and it is estimated that a further £1m
will be funded by the issuing of shares, rather than cash, to
claimants, leaving estimated net cash payments to be made
of £4.6m. Furthermore, net current liabilities at 31 March 2020
includes bank loans of £12.5m. Subsequent to the year end
the bank facility was extended to 30 June 2022 (see below).
As at 31 March 2020, the Group had committed revolving
credit facilities of £17.5m (2019: £25m) and an overdraft
facility of £5.0m (2019: £5.0m), of which £12.5m (2018:
£19.5m) of the revolving credit facility and £nil (2019: £Nil)
of the overdraft was drawn. During the year, the continuing
strength of operating cash flows enabled the Group to cancel
£7.5m of unutilised revolving credit facility. As at 31 March
2020, these facilities were due to expire on 30 November
2020. Subsequent to the year end, on 8 June 2020 these
facilities were extended such that any remaining drawn facility
becomes repayable on 30 June 2022, with all terms and
covenants remaining the same until this time.
On 17 July 2020 certain amendments were made to the
Facilities Agreement to allow for the impact of the Restitution
Scheme.
The Group’s business activities and markets in which it
operates are set out in the Strategic Report. The sectors in
which the Group is particularly well represented are diverse
and a high proportion of the Group’s revenue is recurring in
nature, which provides good visibility and resilience of future
revenue and cash flows.
The Directors have prepared forecasts covering the period
to 31 March 2022, built from the detailed Board approved
budget for the year ending 31 March 2021. The forecasts
include a number of assumptions in relation to order intake,
renewal and churn rates and EBITDA margin improvements.
Whilst the Group’s trading and cash flow forecasts have been
prepared using current trading assumptions, the operating
environment presents a number of challenges which could
negatively impact the actual performance achieved. These
risks include, but are not limited to, achieving forecast
levels of order intake, the impact on customer confidence
as a result of general economic conditions and Brexit and
achieving forecast margin improvements. If future trading
performance significantly under-performs the Group’s
forecasts, this could impact the ability of the Group to comply
with its covenant tests over the period of the forecasts.
The uncertainty as to the future impact on the Group of the
COVID-19 outbreak has been separately considered as part
of the directors’ consideration of the going concern basis
of preparation. Thus far, the Group has not observed any
material impact in trading performance due to COVID-19.
However, due to the uncertainty over the duration and extent
of the impact of COVID-19, the Directors have modelled
a severe but plausible downside scenario when preparing
the forecasts, where the impact of COVID-19 is forecast
to continue until March 2021, after which point the impact
will begin to reduce. Over this period, recurring monthly
order intake is forecast to reduce by 85% compared to
2020, product and services revenues reduce by almost 50%
compared to 2020 and customer loss through insolvency
increases (particularly in the retail, hospitality and leisure
sectors). Certain limited mitigating actions are forecast to
be implemented to control discretionary cost spend in areas
such as travel, entertaining and marketing. It is difficult to
predict the overall outcome and impact of COVID-19 and
the duration of disruption could be longer than anticipated,
but under the downside scenario modelled and in the case
that recovery is more gradual than expected, the forecasts
demonstrate that Group is expected to maintain sufficient
74
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
liquidity and remain in compliance with covenants throughout the period under review whilst still maintaining adequate
headroom against overall facilities, including full repayment of the rolling credit facility by 30 June 2022. The directors
therefore remain confident that the Group has adequate resources to continue to meet its liabilities as and when they fall due
within the period of 12 months from the date of approval of these financial statements. Accordingly, the financial statements
have been prepared on a going concern basis.
1.2 Changes In accounting policy and disclosure
a) New and amended standards adopted by the Group
Accounting standards, amendments or interpretations effective for the first time in the year ended 31 March 2020 which have a
material impact on the Group’s financial statements are detailed below.
IFRS 16 Leases
IFRS 16 has introduced a single on-balance sheet accounting model for lessees. The Group has adopted the modified
retrospective approach, electing to apply the practical expedient to use hindsight when determining the lease term. As a
result, the Group, as a lessee, has recognised right-of-use assets representing its rights to use the underlying assets, and lease
liabilities representing its obligation to make lease payments, for virtually all lease contracts. The table below summarises the
impact on transition, the Group recognising an adjustment of £2.3m to opening retained earnings:
Right-of-use assets
Deferred tax asset
Trade and other receivables (deferred lease incentives derecognised)
Current lease liabilities
Non-current lease liabilities
Retained earnings
1 April 2019
£000
20,771
530
(548)
(1,967)
(21,046)
(2,260)
In relation to those leases brought on balance sheet under IFRS 16, the Group now recognises depreciation and interest costs,
instead of an operating lease expense. During the year ended 31 March 2020, this amounted to £2.1m of depreciation charges
and £1.2m of interest costs from these leases. Expenses relating to leases of low-value assets and short-term leases for which
no right of use asset or lease liability has been recognised were immaterial.
The impact of IFRS 16 on the consolidated income statement, consolidated statement of financial position, and consolidated
cash flow statement for the year ended 31 March 2020 is set out in an appendix to these financial statements.
At transition, the Group elected to apply the practical expedient to grandfather the assessment of which contracts were leases.
For leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of the remaining
lease payments, discounted at an incremental borrowing rate which reflects the characteristics of the underlying lease, at
1 April 2019. The weighted average incremental borrowing rate applied is 5.1%.
75
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
Right-of-use assets are measured at either:
•
•
their carrying amount as if IFRS 16 had been applied since the lease commencement date, discounted by an appropriate
rate. The Group has applied this methodology to the majority of its property leases where the required historical
information is available; or
an amount equal to the lease liability, adjusted for prepaid / accrued lease payments. This method has been applied to the
small number of non-property leases.
The Group has applied the following practical expedients on transition:
•
•
•
leases for underlying assets that have a low value (less than £5,000) or where the remaining lease term on transition was
less than 12 months have been excluded; and
a single discount rate applied to its small portfolio of car leases; and
right of use assets were adjusted by the amount of IAS37 onerous contract provision recorded immediately before the
date of initial application as an alternative to an impairment review.
The table below reconciles the Company’s operating lease commitment at 31 March 2019, under IAS 17, to the lease liability
now being recognised under IFRS 16.
Operating lease commitment at 31 March 2019 as disclosed in the Company’s consolidated financial statements
Discounted using the incremental borrowing rate at 1 April 2019
Recognition exemption for leases of low value assets
Recognition exemption for leases with less than twelve months of lease term at transition
New lease liabilities recognised at 1 April 2019
Existing lease liabilities
Lease liabilities recognised as at 1 April 2019
b) Adopted IFRS not yet applied
1 April 2019
£000
32,665
23,047
(31)
(3)
23,013
4,976
27,989
There are no new standards, amendments to existing standards or interpretations that are not yet effective that are expected
to have a material impact on the Group. Such developments are routinely reviewed by the Group and its financial reporting
systems are adapted as appropriate.
76
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
1.3 Basis of consolidation
The Group financial statements consolidate those of the Company and of its subsidiary undertakings drawn up to
31 March 2020.
Subsidiaries are all entities over which the group has control. The group controls an entity when the group is exposed to, or
has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power
over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They
are deconsolidated from the date that control ceases.
The group applies the acquisition method of accounting to account for business combinations. The consideration transferred
for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests
issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent
consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition date. The
group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the
non-controlling interest’s proportionate share of the acquiree’s net assets.
The excess of the consideration transferred and the amount of any non-controlling interest in the acquiree over the fair value
of the separable identifiable net assets acquired and liabilities incurred or assumed at the acquisition date is recorded as
purchased goodwill. Provision is made for any impairment. Accounting policies previously applied by acquired subsidiaries are
changed as necessary to comply with accounting policies adopted by the Group.
Intra-group transactions, balances and unrealised gains and losses on transactions between group companies are eliminated
on consolidation.
1.4 Segmental reporting
IFRS 8 requires operating segments to be identified based on internal financial information reported to the chief operating
decision-maker for decision-making purposes. The Group considers that this role is performed by the main Board.
The Board believes that the Group continues to comprise a single reporting segment, being the provision of managed
services to customers.
1.5 Revenue recognition
IFRS 15 ‘Revenue from contracts with customers’ was effective for periods beginning on or after 1st January 2018. The
Company adopted IFRS 15, ‘Revenue from Contracts with Customers’, for the year ending 31 March 2019. This establishes a
comprehensive framework for determining whether, how much and when revenue is recognised.
The standard requires revenue earned from contracts to be recognised in line with performance obligations based on a five-
step model.
On inception of the contract we identify a “performance obligation” for each of the distinct goods or services we have
promised to provide to the customer. The following table summarises the performance obligations we have identified for our
major revenue lines and provides information on the time of when they are satisfies and the related revenue recognition policy.
77
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
Revenue Line
Performance Obligation
Revenue recognition policy
Recurring Revenue
Provision of managed services to the
customer. All of the revenue in this category
is contracted and includes a full range of
managed support, maintenance, subscription,
and service agreements.
Performance obligations are identified for
each distinct service for which the customer
has contracted and are considered to be
satisfied over the time period that these
services are delivered.
Revenue for these types of services is
recognised evenly over the period of the
agreement as the services are provided.
Product Revenue
Provision of third-party hardware (e.g. phone
handsets, routers) to the customer as a one-
off, distinct sale.
Revenue for product sales is recognised in
full in the income statement upon delivery to
the customer.
Services Revenue
Performance obligations are satisfied at
the point in time that control passes to the
customer.
Amongst other factors the Group has pricing
and fulfilment risk and as such is considered
to be principal in these transactions.
Provision of professional services, consultancy,
and engineering services in order to setup
and install a customer managed service.
Services revenue is recognised from the date
of installation of a managed service and
recognised evenly over the period of the
agreement.
For distinct separable services revenue is
recognised at the point of completion.
Installation is typically intrinsically linked to
the provision of the managed services (in
recurring revenue above). These services
do not represent separate performance
obligations and are therefore combined with
the associated service performance obligation.
The Group also provides certain services
that are non-complex and distinct from the
provision of the underlying managed service
contract. The completion of these services is a
separate performance obligation.
There are no material obligations in respect of returns, refunds or warranties.
The Group recognises revenue based on the stand-alone selling price of each performance obligation. Determining the selling
price is typically driven by list prices.
Payments received in advance are recognised as contract liabilities and amounts billed in arrears are contract assets. Revenue
expected to be recognised in future periods for performance obligations that are not complete (or partially complete) as at
31 March 2020 is £140m. Of this, £133m relates to revenue for recurring managed services. In comparison, revenue expected
to be recognised in future periods for performance obligations that were not complete (or partially complete) as at 31 March
2019 was £139m. Of this, £120m related to revenue for recurring managed services.
Incremental revenues are generated based on usage for calls and data. The entity has a right to consideration from the
customer at an amount that corresponds directly with the value to the customer of the entity’s performance completed to date,
therefore the entity recognises the revenue to the extent to which it has a right to invoice.
78
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
Any compensation paid up to the fair value of the award at
the cancellation or settlement date is deducted from equity,
with any excess over fair value being treated as an expense in
the income statement.
The Group does not operate any cash settled share-based
payment schemes.
1.8 Taxation
The taxation expense charged in the Group statement of
comprehensive income represents the sum of the current tax
expense and the deferred tax expense.
The current tax payable is based on the taxable profit for
the year. Taxable profit differs from accounting profit as
reported in the Group statement of comprehensive income
because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes
items that are never taxable or deductible. The Group liability
for current tax is measured using tax rates that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable
on differences between the carrying amount of assets and
liabilities in the financial statements and the corresponding
tax bases used in the computation of taxable profit and
is accounted for using the balance sheet liability method.
Deferred tax is provided for on all temporary differences at
the balance sheet date between the tax bases of assets and
liabilities and their carrying amounts for financial reporting
purposes, with the following exceptions:
• where the temporary difference arises from the initial
recognition of goodwill or an asset or liability in a
transaction that is not a business combination that at the
time of the transaction affects neither accounting nor
taxable profit or loss;
•
•
in respect of taxable temporary differences associated
with investments in subsidiaries, where the timing of the
reversal of the temporary differences can be controlled
and it is probable that the temporary differences will not
reverse in the foreseeable future; and
deferred income tax assets are recognised only to the
extent that it is probable that taxable profits will be
available against which deductible temporary differences
carried forward tax credits or tax losses can be utilised.
1.6 Exceptional items
Exceptional items are items of income and expense which
are material and, due to their nature or size, are presented
separately on the face of the income statement in order to
provide a better understanding of the Group’s underlying
financial performance. Exceptional items are excluded from
the Group’s alternative performance measures (APMs), as
defined on page 25, and are disclosed in detail in note 9.
1.7 Share-based payments
The cost of equity-settled transactions with employees is
measured by reference to the fair value of the award at
the date at which they are granted and is recognised as an
expense over the vesting period, which ends on the date at
which the relevant employees become fully entitled to the
award. Fair value is determined by an external valuer using
an appropriate pricing model for which the assumptions
are approved by the Directors. In valuing equity-settled
transactions, only vesting conditions linked to the market
price of the shares of the Company are considered.
No expense is recognised for awards that do not ultimately
vest, except for awards where vesting is conditional upon a
market condition, which are treated as vesting irrespective
of whether or not the market condition is satisfied, provided
that all other performance conditions are satisfied.
At each balance sheet date before vesting, the cumulative
expense is calculated, representing the extent to which the
vesting period has expired and management’s best estimate
of the achievement or otherwise of non-market conditions,
number of equity instruments that will ultimately vest or in
the case of an instrument subject to a market condition, be
treated as vesting described above. The movement in the
cumulative expense since the previous balance sheet date is
recognised in the income statement, with a corresponding
entry in equity.
Where the terms of an equity-settled award are modified
or a new award is designated as replacing a cancelled or
settled award, the existing charge is recognised immediately.
In addition, an expense is recognised over the remainder
of the new vesting period for the incremental fair value of
any modification, based on the difference between the fair
value of the original award and the fair value of the modified
award, both as measured on the date of the modification.
No reduction is recognised if this difference is negative.
Where an equity-settled award is cancelled, it is treated as if
it had vested on the date of cancellation, and any expense
not yet recognised for the award is recognised immediately.
79
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
1.9 Foreign currencies
The functional and presentation currency of Redcentric plc is
Pounds Sterling (£) and the Group conducts the majority of
its business in Sterling.
Transactions in foreign currencies are initially recorded in the
functional currency by applying the rate of exchange ruling
at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are retranslated at the
functional currency rate of exchange ruling at the balance sheet
date. All differences are taken to the income statement, except
for differences on monetary assets and liabilities that form part
of the Group’s net investment in a foreign operation. These are
taken directly to equity until the disposal of the net investment,
at which time they are recognised in the profit or loss.
1.10 Pensions
The Group operates a defined contribution scheme. Pension
costs are charged directly to the income statement in the period
to which they relate on an accrual’s basis. The Group has no
further payment obligations once contributions have been paid.
1.11 Intangible assets
a) Goodwill
Goodwill arises on the acquisition of subsidiaries and
represents the excess of the consideration transferred, the
amount of any non-controlling interest in the acquiree and
the acquisition-date fair value of any previous equity interest
in the acquiree over the fair value of the identifiable net
assets acquired. If the total of consideration transferred, non-
controlling interest recognised and previously held interest
measured at fair value is less than the fair value of the net
asset of the subsidiary, in the case of a bargain purchase, the
difference is recognised directly to the income statement.
Any impairment is recognised immediately as an expense
and is not subsequently reversed.
Goodwill is reviewed for impairment annually or more
frequently if events or changes in circumstances indicate that
the carrying value may be impaired. As at the acquisition
date any goodwill acquired is allocated to each of the cash
generating units expected to benefit from the business
combination’s synergies. Impairment is determined by
assessing the recoverable amount of the cash generating unit
to which the goodwill relates. When the recoverable amount
of the cash generating unit is less than the carrying amount,
including goodwill, an impairment loss is recognised.
b) Other intangible assets
Other intangible assets are carried at cost less accumulated
amortisation and impairment losses.
Other intangible assets acquired separately from a business
are carried initially at cost. An intangible asset acquired
as part of a business combination is recognised outside
goodwill if the asset is separable or arises from contractual or
other legal rights and its fair value can be measured reliably.
Intangible assets with a finite life are amortised on a straight-
line basis over their expected useful lives, as follows:
Customer contracts and related relationships – 5–15 years
Trademarks – 5 years
Software Licences – 5 years (or over the contract term if shorter)
Impairment and amortisation charges are included within
operating expenditure in the income statement.
c) Internally generated intangibles
For the purposes of impairment testing, goodwill acquired
in a business combination is allocated to each of the cash-
generating units (CGUs), or groups of CGUs, that is expected
to benefit from the synergies of the combination. Each unit or
group of units to which the goodwill is allocated represents
the lowest level within the entity at which the goodwill is
monitored for internal management purposes. Goodwill is
monitored at the operating segment level.
Expenditure on software development is capitalised as an
intangible asset only if it meets the recognition criteria set
out in IAS 38 Intangible Assets, requiring it to be probable
that the expenditure will generate future economic benefits
and can be measured reliably. To meet these criteria, it is
necessary to be able to demonstrate, among other things,
the technical feasibility of completing the intangible asset so
that it will be available for use or sale.
Goodwill impairment reviews are undertaken annually
or more frequently if events or changes in circumstances
indicate a potential impairment. The carrying value of the
CGU containing the goodwill is compared to the recoverable
amount, which is the higher of value in use and the fair value
less costs of disposal.
Development expenditure directed towards incremental
improvements in existing products, remedial work and other
maintenance activity does not qualify for recognition as an
intangible asset.
80
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
1.12 Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and any impairment in value.
The cost includes the original price of the asset and the
cost attributable to bringing the asset to its current working
condition for its intended use.
Depreciation, down to residual value, is calculated on a
straight-line basis over the estimated useful life of the asset
which is reviewed on an annual basis.
Office fixtures and fittings – 4-5 years
Leasehold improvements – 15 years
Vehicles and Computer Equipment – 3-5 years (or over the
contract term if shorter)
For property, plant and equipment funded through leases,
where there is reasonable certainty that the Group obtains
ownership by the end of the lease term, depreciation
is provided on a straight line basis over the useful life,
otherwise it’s provided over the shorter of the useful life and
the lease term.
An item of property, plant and equipment is de-recognised
upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset. Any
gain or loss arising on de-recognition of the asset (calculated
as the difference between the net disposal proceeds and
the carrying amount of the item) is included in the income
statement in the period the item is de-recognised.
1.13 Impairment of property, plant and equipment and
intangible assets excluding goodwill
Other intangible assets and property, plant and equipment
are reviewed for impairment whenever events or changes
in circumstances indicate the carrying values may not be
recoverable. If any such indication exists and where the
carrying amounts exceed the estimated recoverable amount,
the assets or cash generating units are written down to their
recoverable amount.
For an asset that does not generate largely independent cash
inflows, the recoverable amount is determined by the cash
generating unit to which the asset belongs. Fair value less
costs to sell is, where known, based on actual sales price net
of costs incurred in completing the disposal.
Non-financial assets that were impaired in the previous
periods are annually reviewed to assess whether the
impairment is still relevant.
1.14 Leases
When entering into a new contract, the Group assesses
whether it is, or contains, a lease. A lease conveys a right to
control the use of an identified asset for a period of time in
exchange for consideration.
The Group recognises a right of use asset and a lease liability
at the lease commencement date. The right of use asset is
initially measured at cost, and subsequently at cost less any
accumulated depreciation and impairment losses, adjusted
for certain remeasurements of the lease liability. Depreciation
is provided on a straight-line basis over the life of the lease,
or the useful economic life if that is shorter.
Obligations to restore the underlying asset to the condition
required by the terms and conditions of the lease are
recognised and measured under IAS 37 Provisions,
Contingent Liabilities and Contingent Assets, and included in
the related right-of-use asset.
The lease liability is initially measured at the present value of
the lease payments that are not paid at the commencement
date and discounted using the interest rate implicit in the
lease or, more typically, the Group’s incremental borrowing
rate (when the implicit rate cannot be readily determined).
The lease liability is subsequently increased by the interest
cost on the lease liability and decreased by lease payments
made. It is remeasured when there is a change in future lease
payments arising from a change in an index or rate, or changes
in the Group’s assessment of whether a purchase, extension or
termination option is reasonably certain to be exercised.
The recoverable amount of intangible assets and property,
plant and equipment is the greater of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset.
The Group adopts recognition exemptions for short-term
(less than 12 months) and low value leases. The Group
classifies payments of lease liabilities (principal and interest
portions) as part of financing activities. Payments of short-
term, low value and variable lease components are classified
within operating activities.
81
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
1.15 Financial instruments
a) Financial assets
The Group classifies its financial assets as loans and
receivables measured at amortised cost.
b) Financial liabilities
Trade payables
Trade payables are stated at their nominal value,
recognised initially at fair value and subsequently
valued at amortised cost.
Loans and receivables are non-derivative financial assets with
fixed or determinable payments which are not quoted in an
active market. They are included in current assets, except for
maturities greater than 12 months after the balance sheet
date which are classified as non-current assets. The Group’s
loans and receivables comprise ‘trade and other receivables’,
‘cash and cash equivalents’, and ‘other receivables’ which are
expected to be settled in cash.
Trade receivables
Trade receivables are amounts due from customers for goods
sold and services provided in the ordinary course of business.
Trade receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method, less provision for impairment.
In recognising any provision for impairment, the Group
applies the IFRS 9 approach to measuring expected credit
losses which uses a lifetime expected loss allowance for all
assets held at amortised cost. The Company recognises a loss
allowance for all expected credit losses on initial recognition
of trade receivables.
The Group’s trade and other receivables are
non-interest bearing.
Cash and cash equivalents
Cash and cash equivalents on the balance sheet comprise
cash at bank and in hand and short-term deposits with an
original maturity of three months or less, net of outstanding
bank overdrafts.
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation, and a reliable
estimate can be made of the amount of the obligation.
If the effect of the time value of money is material,
provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and, where
appropriate, the risks specific to the liability.
Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at fair
value less directly attributable transaction costs. After initial
recognition, interest-bearing loans and borrowings are
subsequently measured at amortised cost using the effective
interest method. Gains and losses arising on the repurchase,
settlement or otherwise cancellation of liabilities are
recognised in the finance cost line in the income statement.
Loans are carried at fair value of initial recognition, net of
unamortised issue costs of debt. These costs are amortised
over the loan term.
82
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
2 Critical accounting judgements and key
sources of estimation uncertainty
The following outlines the key elements of estimation
uncertainty within the provision:
The Group has adopted IFRS 16 for the first time in these
financial statements, with £23.5m of IFRS 16 lease liabilities,
principally property leases, recognised at 31 March 2020. Of
these, £21.0m were previously classified as operating leases
under IAS17. Judgement has been applied in determining
whether a contract contains a lease and the anticipated
tenure length on these leases (whether or not break clauses
will be exercised has been determined based on our
historical experience and expectations for future trading and
capacity requirements). Estimations have been made with
regard to discount rates applied, in determining appropriate
bonds, property asset premiums and in applying the portfolio
expedient to enable the same discount rate to be applied
across cars and other non-property leases.
Credit note provisioning remains a key source of estimation
uncertainty that could result in a material change to the
revenue recognised. The group has a large customer base
and historically a material number of credit notes have
been raised by the group due to issues in the accuracy of
invoicing to customers. A credit note provision is estimated
at the period end to account for revenue which has been
recognised in the year, but for which a credit note will
subsequently be raised post year end. The provision has
been calculated based on empirical analysis of credit notes
issued against revenue recognised over a period of two years
with adjustments made based on management’s knowledge
of specific items in the customer base. The provision
recognised at 31 March 2020 is £1.2m (31 March 2019:
£1.5m). During the year £1.6m of new provision has been
created and £1.9m utilised through actual credit notes raised.
A deferred tax asset of £2.4m (31 March 2019: £2.8m) is
recognised in relation to tax losses from historic acquisitions.
Deferred tax assets are recognised only to the extent that
it is probable that future taxable profits will be available
against which the temporary differences can be utilised.
Recognition, therefore, involves estimates regarding the
prudent forecasting of future taxable profits of the business
and in applying an appropriate risk adjustment factor. Whilst
the Group made a statutory loss before tax of £10.6m in the
year to 31 March 2020 due to an £11.4m provision being
recorded in relation to the Restitution Scheme (see note 23)
the Group is ordinarily profitable.
During the period, the Company recorded a provision of
£11.4m in relation to the Restitution Scheme. At 31 March
2020 the value of the provision was calculated using the
latest estimates available in relation to potential claims likely
to be made under the scheme.
83
Basis for calculation of the provision
The basic entitlement (as set in the Scheme Circular) is:
•
•
•
14.30p per share for claims settled in shares (calculated
as a fixed 0.13 of a share for every net share purchase
at 110p).
2.66p per share in cash
14.30p + 2.66p = 16.96p per net share purchase
x 62,500,000 net share purchases (see below) =
£10,625,000, plus costs of £805,000 = £11,430,000
There are four main sources of estimation uncertainty:
a) The number of net share purchases in the relevant period
b) The value attributed to the compensation paid, to the
extent settled in shares
c) The split of claims between cash and shares
d) The number of claims received
a) The number of net share purchases in the relevant period:
• Net share purchases are estimated at 62,500,000,
based on share register records and trading
throughout the relevant period. Adjustments have
been estimated in respect of institutional shareholder
entities who had multiple funds which were
aggregated in to one line.
b) Value attributed to the compensation paid per eligible net
share purchase:
I. Instead of the basic entitlement, a potential claimant may
elect to receive one of the following:
•
•
•
If a claimant opts to receive compensation entirely in
cash, 16.96p is paid for each net share purchase in
the relevant period.
If a claimant opts to receive compensation entirely
for shares, 0.154 of an ordinary share per each net
share purchase in the relevant period is issued to the
claimant (representing 16.96p).
If a claimant opts to receive compensation 50% in
cash and 50% in shares, 8.48p cash is paid and 0.077
of an ordinary share is issued for each net share
purchase in the relevant period.
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
II. The value attributed to the compensation paid to a
a) Foreign exchange risk
claimant involves estimation only to the extent that a
claimant opts for shares and the fair value of the shares
issued differs from 110p.
c) The split between cash and shares
Estimates have been based on discussions with major
shareholders and certain former shareholders likely to be
potential claimants. Such discussions indicate that existing
shareholders will opt for the payment of compensation in
shares and former shareholders are more likely to opt for
payment of compensation in cash.
d) The number of claims received
The provision has been based on 100% of potential claimants
actually submitting a claim. However, it is not clear at this
stage whether this will be the case.
3 Financial risk management
The objectives of the Group’s treasury activities are to
manage financial risk, secure cost-effective funding where
necessary and minimise adverse effects of fluctuations in the
financial markets on the value of the Group’s financial assets
and liabilities, on reported profitability and on cash flows of
the Group.
The Group’s principal financial instruments for fundraising
are bank borrowings, overdraft facilities and loans. The Group
has various other financial instruments such as cash, trade
receivables and trade payables that arise directly from
its operations.
The Group’s activities expose it to a variety of financial risks:
market risk (including foreign exchange, cash flow interest
rate risk, and price risk), credit risk, and liquidity risk. The
Group’s overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise
potential adverse effects on the Group’s financial performance.
Risk management is carried out centrally under policies
approved by the Board of Directors. The Board provides
principles for overall risk management, as well as policies
covering each specific risk area.
The Group mainly operates within the UK with foreign
exchange risk arising from certain transactions with
counterparties denominated in foreign currencies.
This is not a significant risk for the Group.
b) Cash flow interest rate risk
The Group receives interest on cash and cash equivalents
and pays interest on its borrowings. Borrowings at variable
rates expose the Group to cash flow interest rate risk. During
the year ended 31 March 2020 the Group’s borrowings at
variable rate were denominated in Pounds Sterling with
interest linked to Sterling interest rates.
The Group analyses its interest rate exposure on a dynamic
basis. Various scenarios are simulated taking into consideration
refinancing, renewal of existing positions, alternative financing
and hedging. Based on these scenarios, the Group calculates
the impact on profit or loss of a defined interest rate shift and
manages its cash flow interest rate risk accordingly.
Based on the simulations performed, the impact on post-tax
profit and equity of a +/– 1% shift in the interest rate would
not be material. The simulation is done on a quarterly basis
to verify that the maximum loss potential is within the limit
given by management.
c) Price risk
The Group is not exposed to significant commodity or
security price risk.
d) Credit risk
Credit risk arises from cash and cash equivalents, as well
as credit exposures to customers. Individual risk limits are
set based on internal and external ratings and reviewed by
the Board where appropriate. The utilisation of credit limits
is regularly monitored with appropriate action taken by
management in the event of a breach of credit limit.
e) Liquidity risk
Management monitors rolling forecasts of the Group’s
undrawn borrowing facility and cash and cash equivalents
based on expected cash flow. The Group’s liquidity
management policy involves projecting cash flows and
considering the level of liquid assets necessary to meet these.
84
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
4 Capital risk management
5 Segment reporting
IFRS 8 requires operating segments to be identified based on
internal financial information reported to the chief operating
decision-maker (CODM) for decision-making purposes. The
Group considers that this role is performed by the main
Board. The Board believes that the Group continues to
comprise a single reporting segment, being the provision
of managed services to customers. The CODM assesses
profit performance principally through an adjusted EBITDA
measure, as defined on page 25.
Whilst the Board reviews the Group’s three revenue streams
separately (recurring, product and service), the operating
costs and operating asset base used to derive these revenue
streams are the same for all three categories and are presented
as such in the Group’s internal reporting to the CODM.
Non-current assets held outside the UK total £nil (31 March
2019: £nil).
The Group’s objectives when managing capital are to
safeguard the Group’s future growth and its ability to
continue as a going concern in order to provide returns for
shareholders and to maintain an optimal capital structure
to reduce the cost of capital. The Group operates in the
managed services sector which, generally, does not require
substantial fixed asset investments. Consequently, the Group
is financed predominantly by equity.
In order to maintain or adjust the capital structure the Group
has previously both issued new shares and borrowed using
bank facilities. The Group monitors capital on the basis of
the ratio of net bank debt to adjusted EBITDA. Net debt
is calculated as total bank borrowings (including ‘current
and non-current borrowings’ as shown in the consolidated
balance sheet) less cash and cash equivalents, and
adjusted EBITDA is defined as earnings before interest, tax,
depreciation, amortisation, exceptional costs and share-
based payments. The Group’s strategy is to maintain the
ongoing ratio at below 2.5x, although the bank facilities
can accommodate a higher ratio. The ratio was comfortably
below this level throughout the year, and at 31 March 2020
was 0.8x (31 March 2019 – 1.1x).
The bank facilities referred to in Note 21 contain various
covenants relating to EBITDA, interest cover, net debt and
cash flow, which the Group monitors on a monthly basis.
The Group adopts a risk-averse position with respect to
borrowings and maintains a significant amount of headroom
in its bank facilities to ensure that any unexpected situations
do not create financial stress.
The Board remains committed to a progressive dividend
policy and will review the possibility of reinstating the
dividend when it releases the Group’s half year results.
However, in light of the Restitution Scheme and the
continued uncertainty resulting from the ongoing
COVID-19 pandemic, the Board has decided that it will
not be recommending the payment of a final dividend to
shareholders for FY20.
The Group grants share options to Directors and other
selected employees. However, these do not have a significant
impact on the Group’s capital structure.
85
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
6 Revenue
Revenue for the year ended 31 March 2020 was generated wholly from the UK and is analysed as follows:
Recurring revenue
Product revenue
Services revenue
Total revenue
Revenue is analysed into the following categories:
Year ended
31 March 2020
Year ended
31 March 2019
£000
77,617
5,215
4,653
87,485
£000
80,544
5,810
6,906
93,260
•
Recurring monthly revenue, lower at £77.6m (FY19: £80.5m), largely driven by a reduction in Public Sector hosting
revenues (£2.1m), caused by the government’s Crown Hosting policy. Recurring revenues excluding Crown Hosting have
increased in each of the last three quarters.
• Non-recurring product revenue, which was lower at £5.2m (FY19: £5.8m), was impacted by the industry trend to move away
from on-premise to cloud solutions and by customers delaying discretionary spending due to the economic uncertainty.
• Non-recurring services revenue was lower at £4.7m (FY19: £6.9m).
6.1 Contract Balances
The following table provides information about receivables, contract assets and contract liabilities from contract with customers.
Receivables, which are included in trade and other receivables
Accrued income
Deferred income
There were no material impairment losses recorded during the year or the prior year.
Year ended
31 March 2020
Year ended
31 March 2019
£000
£000
12,375
1,849
(9,685)
11,591
1,949
(9,142)
86
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
7 Operating loss
The following costs are considered to be significant items within operating loss.
Amortisation of acquired intangible assets
Amortisation of intangible assets: owned
Amortisation of intangible assets: leased
Depreciation: owned assets
Depreciation: assets held under finance lease
Depreciation: right-of-use assets
Share-based payments
Operating lease payments
Employee benefits expense, excluding share-based compensation
Year ended
31 March 2020
Year ended
31 March 2019
£000
6,252
876
321
6,373
-
2,441
562
-
20,695
37,520
£000
6,252
1,005
135
5,066
2,264
-
366
3,424
21,027
39,539
8 Auditors’ remuneration
Total fees payable by the Group during the year to KPMG LLP in respect of the audit and other services provided were as follows:
Audit of these financial statements
Amounts payable to the Group’s auditor and associated companies in respect of:
-Audit of the financial statements of subsidiaries of the Company
-Tax compliance services
-Tax advisory services
-All other services
9 Exceptional items
Professional fees associated with the FCA Investigation
Staff restructuring
Vacant property lease provisions net of costs
Onerous service contracts
Circuit termination charges
Restitution provision
87
Year ended
31 March 2020
Year ended
31 March 2019
£000
£000
25
169
11
11
-
216
25
131
20
20
16
212
Year ended
31 March 2020
Year ended
31 March 2019
£000
(555)
465
(141)
1,155
163
11,429
12,516
£000
554
804
553
-
-
-
1,911
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
9 Exceptional items (continued)
During the year, the Group has continued to incur professional advisor costs in relation to the FCA Investigation but has also
received £715k from its insurers.
Staff restructuring costs relate to a rationalisation programme principally impacting the Development, Operations (managed
apps), Assurance, and MIS (internal IT) departments. New structures have been put in place in each of these areas and a total
of 19 employees have been made redundant.
The Theale office was closed during in the prior year and a £553k provision created to cover anticipated expenditure up to the
end of the contractual term to 29th September 2023. Early surrender of the lease has been negotiated during the current year,
resulting in a £156k provision release offset by £15k of costs.
The onerous service contract cost relates to the costs associated with third party service arrangements no longer utilised (or in
the process of being ceased) by the business.
Circuit termination charges relate to cancellation costs incurred on unused circuits / connections cancelled during the year, as
part of the Group’s network rationalisation review.
The Restitution Scheme provision constitutes the amount that has been agreed with the FCA to settle with net purchasers of
ordinary shares in the Company between 9 November 2015 and 7 November 2016.
10 Finance income and costs
Finance income
Other interest receivable
Finance costs
Interest payable on bank loans and overdrafts
Interest payable on leases
Amortisation of loan arrangement fees
Year ended
31 March 2020
Year ended
31 March 2019
£000
£000
5
13
(610)
(1,220)
(51)
(1,881)
(947)
(93)
(51)
(1,091)
Interest payable on leases includes £1.1m of interest on leases previously classified as operating leases under IAS17.
88
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
11 Employees
The average monthly number of people (including Executive Directors) employed by the Group during the year was as follows:
Operations
Selling and distribution
Administration
Staff costs were:
Wages and salaries
Social security costs
Share options granted to Directors and employees
Pension costs
Payments in lieu of notice and redundancy included within exceptional items
Year ended
31 March 2020
Year ended
31 March 2019
Number
Number
296
108
58
462
310
103
66
479
Year ended
31 March 2020
Year ended
31 March 2019
£000
17,396
1,648
562
624
465
20,695
£000
18,173
1,907
366
581
804
21,831
11.1 Key management compensation
Key management personnel are those persons having authority and responsibility for planning, controlling and directing the
activities of the entity either directly, or indirectly. The following table details the compensation of key management personnel,
being senior management that sit on the Operating Board of the Group.
Basic salary, allowances and fees
Bonus and other benefits
Share based payments
Pension costs
Payments in lieu of notice and redundancy
Year ended
31 March 2020
Year ended
31 March 2019
£000
1,021
102
241
17
154
1,535
£000
765
121
85
29
-
1,000
89
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
11 Employees (continued)
11.2 Director’s remuneration
The remuneration of the Directors in respect of the year was as follows:
Basic Salary,
allowances,
and fees
Bonus
Pension
Share-
based
payments
£000
£000
£000
£000
FY20
Total
£000
FY19
Total
£000
307
103
-
39
49
44
41
30
80
-
-
-
-
-
-
-
4
4
-
-
-
-
-
-
138
-
-
-
-
-
-
-
529
107
-
39
49
44
41
30
419
-
383
-
40
36
70
7
Executive
Peter Brotherton1
Dean Barber2 (appointed 2-Sept-19,
resigned 3 April 2020)
Chris Jagusz3 (resigned 21-Nov-18)
Non-executive
Ian Johnson (appointed 16-Oct-19)
Stephen Vaughan
Jon Kempster
Chris Cole (resigned 16-Oct-19)
Chris Rigg (resigned 31-Dec-19)
1 Includes travel allowance of £7k. On 26 September 2019 Peter Brotherton exercised nil-cost options over 161,905 ordinary
shares of 0.1p each.
2Includes car allowance of £4k
3 Any share-based payments issued to Chris Jagusz in FY19 lapsed upon his departure, therefore the expense was written back
in FY19 and there was net nil impact to the P&L.
90
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
11 Employees (continued)
Details of share options in the Company held by the Directors during the year are as follows (audited):
Exercise
price (p)
Balance,
31 March
2019
Granted
Forfeited /
expired
Exercised
Peter Brotherton
Dean Barber
(a)
(b)
(c)
(d)
(e)
(f)
Nil
Nil
63
Nil
Nil
Nil
161,905
192,481
28,571
298,879
-
681,836
-
-
-
-
379,267
379,267
-
175,750
-
-
-
-
-
-
-
(161,905)
-
-
-
-
(161,905)
Balance,
31 March
2020
-
192,481
28,571
298,879
379,267
899,198
-
175,750
(a) The options were granted on 29 December 2017 under the Company’s Long-Term Incentive Plan (“LTIP”) and vested post
the release of the Group’s results for the year ended 31 March 2019.
(b) The options were granted on 29 June 2017 under the Company’s LTIP. The options will vest post the release of the Group’s
results for the year ended 31 March 2020 subject to the achievement of performance conditions related to the growth in
earnings per share.
(c) The options were granted pursuant to the Company’s HMRC approved Save-As-You-Earn Option Plan. These options are
available for exercise from 30 August 2020.
(d) The options were granted on 26 November 2018 under the Company’s LTIP. The options will vest post the release of the
Group’s results for the year ended 31 March 2021 subject to the achievement of performance conditions related to the
growth in earnings per share.
(e) The options were granted on 28 June 2019 under the Company’s LTIP. The options will vest post the release of the Group’s
results for the year ended 31 March 2022 subject to the achievement of performance conditions related to the growth in
share price.
(f) The options were granted on 3 September 2019 under the Company’s LTIP. The options will vest post the release of the
Group’s results for the year ended 31 March 2022 subject to the achievement of performance conditions related to the
growth in share price.
91
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
12 Income tax expense
Income tax
UK current year tax charge
Overseas current year tax charge
Adjustment in respect of prior years
Total income tax
Deferred tax
Current year
Adjustment in respect of prior years
Total deferred tax
Total tax (credit) / charge in consolidated statement of comprehensive income
Factors affecting the tax charge for the year
Loss before taxation
Taxation at the average UK corporation tax rate of 19.0% (FY19: 19.0%)
Tax effects of:
- Expenses not allowable in determining taxable profit
- Adjustment in respect of prior years
- R&D tax credit
- Deferred tax rate change
- Effect of overseas tax rates
Tax (credit) / charge for the year
Year ended
31 March
2020
£000
Year ended
31 March
2019
£000
844
102
(148)
798
(796)
(15)
(811)
(13)
(10,613)
(2,016)
2,206
(163)
(40)
(22)
22
(13)
602
98
90
790
(754)
568
(186)
604
(1,363)
(259)
84
658
-
87
34
604
Expenses not allowable in determining taxable profits includes £2.2m in respect of the provision booked for restitution. See
Note 23 for further detail.
The adjustment in respect to prior year relates to the resubmission of the FY18 and FY19 tax computations for R&D tax credits
claimed during the year.
The government announced during the year that the planned UK corporation tax main rate reduction applicable from 1 April
2020 now remains at 19% rather than the previously enacted reduction to 17%. As deferred tax assets and liabilities are
measured at the rates expected to apply in the period of the reversal, deferred tax balances have been calculated at 19%.
92
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
13 Earnings per share (EPS)
The calculation of basic and diluted EPS is based on the following earnings and number of shares.
Year ended
31 March
2020
£000
Year ended
31 March
2019
£000
(10,600)
(13)
6,252
562
12,516
8,717
(1,656)
7,061
Number
‘000
149,311
(822)
148,489
2,314
150,803
Pence
(7.14)p
4.76p
(7.14)p
4.68p
(1,967)
604
6,252
366
1,911
7,166
(1,362)
5,804
Number
‘000
149,135
-
149,135
1,141
150,276
Pence
(1.32)p
3.89p
(1.32)p
3.86p
Year ended
31 March 2020
Year ended
31 March 2019
£000
-
1,492
1,239
2,731
£000
597
-
-
597
Earnings
Statutory earnings
Tax charge
Amortisation of acquired intangibles
Share-based payments
Exceptional items
Adjusted earnings before tax
Notional tax charge at standard rate
Adjusted earnings
Weighted average number of ordinary shares
Total shares in issue
Shares held in treasury
For basic EPS calculations
Effect of potentially dilutive share options
For diluted EPS calculations
EPS
Basic
Adjusted
Basic diluted
Adjusted diluted
14 Dividends
Interim dividend for the year ended 31 March 2019
Final dividend for the year ended 31 March 2019
Interim dividend for the year ended 31 March 2020
93
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
14 Dividends (continued)
The Group paid an interim dividend in respect of the year to 31 March 2019 of 0.40p per ordinary share, with a total payment
value of £0.6m.
The Group paid a final dividend in respect of the year to 31 March 2019 of 1.00p per ordinary share, with a total payment value
of £1.5m.
The Group paid an interim dividend for the year ended 31 March 2020 of 0.83p per ordinary share, with a total payment value
of £1.2m.
In light of the Restitution Scheme and the continued uncertainty resulting from the ongoing COVID-19 pandemic, the Board
has decided not to recommend payment of a final dividend to shareholders for FY20.
15 Intangible Assets
Cost
At 1 April 2018
Additions
Exchange differences
At 31 March 2019
Additions
Exchange differences
At 31 March 2020
Accumulated amortisation and impairment
At 1 April 2018
Charged in year
Exchange differences
Write-off
At 31 March 2019
Charged in year
Exchange differences
Write-off
At 31 March 2020
Net book value
At 31 March 2020
At 31 March 2019
At 31 March 2018
Customer
contracts
and related
relationships
Trademarks
Software
and licences
£000
£000
£000
Goodwill
£000
Total
£000
43,269
62,284
275
5,613
111,441
-
-
-
-
-
-
717
1
717
1
43,269
62,284
275
6,331
112,159
-
-
-
-
-
-
578
-
578
-
43,269
62,284
275
6,909
112,737
-
-
-
-
-
-
-
-
-
25,813
6,252
-
-
32,065
6,252
-
-
275
-
-
-
275
-
-
-
2,867
1,141
(1)
10
4,017
1,197
-
64
28,955
7,393
(1)
10
36,357
7,449
-
64
38,317
275
5,278
43,870
43,269
43,269
43,269
23,967
30,219
36,471
-
-
-
1,631
2,314
2,746
68,867
75,802
82,486
94
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
15 Intangible Assets (continued)
Included in software and licences are intangibles assets held under leases with a carrying value of £452k at 31 March 2020
(31 March 2019: £773k). Of the £578k intangible assets acquired in the year, £288k were funded using leases (FY19: £484k).
Customer contracts have a weighted average remaining amortisation period of 4 years and 11 months (FY19: 5 years and
11 months).
Impairment tests for goodwill and other intangibles
The Company has assessed that the trading operations of the business constitute only one cash generating unit.
Intangible assets are reviewed for impairment at least annually or more frequently if events or changes in circumstances
indicate that the carrying value may be impaired. Goodwill is tested annually for impairment and, to confirm whether an
impairment of the goodwill is necessary, management compares the carrying value to the value in use.
The value in use has been calculated using budgeted cash flow projections to the period of 31 March 2022, extrapolated for a
further three years by an average annual revenue growth rate of 2.0%. A terminal value based on a perpetuity calculation using
a 0.0% real growth rate was then added.
In addition to revenue growth, the key assumptions used in the impairment testing were as follows:
• Gross margin percentage of 60.5%
•
•
Pre-tax discount rate of 9.21% (post tax 8.6%); and
Terminal growth rate percentage of 0.0%
A reasonably possible adverse movement in any of the above key assumptions made would not give rise to impairment.
95
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
16 Property, plant and equipment
Land and
buildings
Leasehold
improvements
Office fixtures
and fittings
Vehicles &
computer
equipment
£000
£000
£000
£000
Cost
At 1 April 2018
Reclassification
Additions
Disposals
Exchange differences
At 31 March 2019
Recognition of ROU asset on initial
application of IFRS 16
Adjusted balance at 1 April 2019
Additions
Remeasurement
Disposals
Exchange differences
At 31 March 2020
Accumulated depreciation
At 1 April 2018
Reclassification
Charged in year
On disposals
Exchange differences
At 31 March 2019
Recognition of ROU asset on initial
application of IFRS 16
Adjusted balance at 1 April 2019
Charged in year
On disposals
Exchange differences
At 31 March 2020
Net book value
At 31 March 2020
At 31 March 2019
At 31 March 2018
-
-
-
-
-
-
27,858
27,858
-
2,030
-
-
29,888
-
-
-
-
-
-
7,823
7,823
1,898
-
-
9,721
20,167
-
-
29,837
274
5,723
(1,849)
2
33,987
736
34,723
6,081
-
(6,500)
(14)
34,290
14,339
272
6,346
(1,092)
(1)
19,864
-
19,864
6,155
(6,500)
(15)
19,504
14,786
14,123
15,498
13,896
(274)
112
-
-
1,372
-
159
(37)
-
13,734
1,494
-
1,494
129
-
(569)
2
1,056
1,002
-
115
(22)
-
1,095
-
1,095
135
(569)
-
661
395
399
370
-
13,734
134
-
(6,285)
-
7,583
9,526
(272)
869
-
-
10,123
-
10,123
626
(6,285)
-
4,464
3,119
3,611
4,370
96
Total
£000
45,105
-
5,994
(1,886)
2
49,215
28,594
77,809
6,344
2,030
(13,354)
(12)
72,817
24,867
-
7,330
(1,114)
(1)
31,082
7,823
38,905
8,814
(13,354)
(15)
34,350
38,467
18,133
20,238
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
16 Property, plant and equipment (continued)
Included in vehicle and computer equipment and land and buildings are assets held under leases with a carrying value of
£25,838k at 31 March 2020 (31 March 2019: £3,979k). Of the £6,344k fixed assets acquired in the year, £2,370k were funded
using leases (FY19: £1,325k).
The remeasurement represents the estimated costs associated with returning certain leasehold properties to the original
condition upon exiting the lease. All changes in the dilapidations provision (see note 23) other than changes resulting from the
unwinding of the discount are added or deducted from the cost of the related asset in the current period.
16.1 Right of use assets
Most of the Group’s right-of-use assets are associated with our leased property portfolio.
Land and
buildings
£000
20,035
(1,898)
-
2,031
20,168
Vehicles &
computer
equipment
£000
736
(543)
2,370
-
2,563
Total
£000
20,771
(2,441)
2,370
2,031
22,731
At 1 April 2019
Depreciation charge for the year
Additions
Other movements
At 31 March 2020
17 Deferred tax
Certain deferred tax assets and liabilities have been offset on the face of the consolidated statement of financial position.
The following is the analysis of the deferred tax balances (before offset) for financial reporting purposes:
Year ended
31 March
2020
£000
(4,550)
6,032
1,482
Year ended
31 March
2020
£000
5,134
(584)
4,550
Year ended
31 March
2019
£000
(5,134)
5,276
142
Year ended
31 March
2019
£000
6,197
(1,063)
5,134
Deferred tax liabilities
Deferred tax assets
17.1 Deferred tax liabilities
Opening balance
Recognised in the income statement
Deferred tax liabilities relate to intangible assets from business acquisitions.
97
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
17 Deferred tax (continued)
17.2 Deferred tax assets
Cost
At 1 April 2018
Recognised in income statement
Adjustment in relation to prior year
At 31 March 2019
Adjustment upon transition to IFRS 16
Recognised in income statement
Adjustment in relation to prior year
At 31 March 2020
18 Trade and other receivables
Share-
based
payments
Property,
plant and
equipment
Other
timing
differences
Tax losses
£000
£000
£000
£000
India
£000
11
5
28
44
-
3
-
47
57
9
(30)
36
-
127
(10)
153
3,206
(223)
(203)
2,780
-
(365)
(5)
2,867
(100)
(363)
2,404
-
527
-
2,410
2,931
11
1
-
12
530
(51)
-
491
Total
£000
6,152
(309)
(568)
5,276
530
241
(15)
6,032
Trade receivables
Less: provision for impairment of trade receivables and credit notes
Trade receivables – net
Other receivables
Prepayments
Commission contract asset
Accrued income
Year ended
31 March 2020
Year ended
31 March 2019
£000
£000
13,813
(1,438)
12,375
664
5,639
2,734
1,849
23,261
13,112
(1,521)
11,591
194
6,133
2,040
1,949
21,907
The commission contract asset arose on the adoption of IFRS 15. For the year ended 31 March 2020 the impairment for this
contract asset was immaterial (31 March 2019: immaterial).
19 Credit quality of financial assets
The amounts of the maximum exposure to credit risk at the reporting date are as follows:
Trade receivables
Other receivables
Cash and cash equivalents
98
Year ended
31 March 2020
Year ended
31 March 2019
£000
12,375
664
3,710
16,749
£000
11,591
194
7,206
18,991
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
19 Credit quality of financial assets (continued)
19.1 Credit quality of trade receivables
The Directors monitor the quality of the receivables not impaired and believe them to be recoverable. The non-impaired receivables
are fully performing and relate to independent customers with no history of default. The individually impaired receivables relate to
receivables over 365 days, customers in financial difficulty, customer acceptance issues and cancelled contracts.
The ageing analysis of trade receivables is as follows:
Current
1 to 30 days overdue
31 to 60 days overdue
61 to 90 days overdue
91 to 180 days overdue
> 180 days overdue
Gross trade debtors
Provision
Net trade debtors
Year ended
31 March 2020
Year ended
31 March 2019
£000
10,993
1,656
593
220
288
63
13,813
(1,438)
12,375
£000
9,074
2,628
505
99
390
416
13,112
(1,521)
11,591
As at 31 March 2020, trade receivables of £246k were provided for (31 March 2019: £185k). £1,192k has been provided for
within the credit note provisions (31 March 2019: £1,337k). No provision has been made against accrued income in the year
ended 31 March 2020 (31 March 2019: £nil).
The provision is calculated by management on a specific basis based on their best estimate of recoverability considering the
age and specific circumstances relating to the debtor. The maximum exposure to credit risk at the reporting date is the fair
value of each class of receivable mentioned above. The Group does not hold any collateral as security.
Movements on the Group bad debt and credit provisions were as follows:
At 1 April 2018
Creation of provision
Utilisation of provision
At 31 March 2019
Creation of provision
Utilisation of provision
At 31 March 2020
Provision
in relation
to FY18
and earlier
Provision in
relation to
FY19
Provision in
relation to
FY20
Total
provision
£000
£000
£000
£000
981
574
(1,337)
218
36
(247)
7
-
2,768
(1,465)
1,303
10
(707)
606
-
-
-
-
1,736
(911)
825
981
3,342
(2,802)
1,521
1,782
(1,865)
1,438
19.2 Cash and cash equivalents
The Group’s cash is held at accounts with Barclays Bank PLC, which has a Standard and Poor’s rating of A.
99
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
20 Trade and other payables
Trade payables
Other payables
Taxation and social security
Accruals
Deferred income
Corporation Tax
Year ended
31 March 2020
Year ended
31 March 2019
£000
7,661
198
2,596
4,171
9,685
-
£000
6,603
275
3,249
3,028
9,142
-
24,311
22,297
Of the deferred income balance of £9.1m at 31 March 2019, £6.9m has been recognised as revenue in the year ended
31 March 2020.
Of the deferred income balance of £8.3m at 31 March 2018, £7.9m was recognised as revenue in the year ended
31 March 2019.
21 Borrowings
Current
Lease liabilities
Term loans
Bank loan
Unamortised loan arrangement fee
Non-current
Lease liabilities
Term loans
Bank loan
Unamortised loan arrangement fee
Year ended
31 March 2020
Year ended
31 March 2019
£000
£000
3,528
115
12,500
(17)
16,126
22,097
36
-
-
22,133
2,762
294
-
-
3,056
2,214
69
19,500
(68)
21,715
At 31 March 2020, the Group was party to £47.5m of bank facilities with a termination date of 30 November 2020. The facilities
comprise a Revolving Credit Facility of £17.5m (£12.5m utilised at 31 March 2020) with a £20.0m accordion (£nil utilised at 31
March 2020), a £5.0m Overdraft Facility (£nil utilised at 31 March 2020) and a £5.0m Asset Financing Facility (£1.1m utilised at
31 March 2020).
The RCF has been provided jointly by Barclays Bank PLC and The Royal Bank of Scotland PLC, with Lombard Technology
Services Ltd providing the Asset Financing Facility and Barclays Bank PLC the Overdraft Facility.
100
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
21 Borrowings (continued)
Post the year-end the Banks have agreed to extend the current facilities to 30 June 2022, with all terms and covenants
remaining the same until this time. On 17 July 2020 certain amendments were made to the Facilities Agreement to allow for
the impact of the Proposed Restitution Scheme.
21.1 Reconciliation of net debt
As at 31
March
2018
Net cash
flow
Net non-
cash flow
As at 31
March
2019
Net cash
flow
Net non-
cash flow
£000
£000
£000
£000
£000
£000
Cash
RCF
Term Loan
Lease Liabilities
6,089
(27,864)
-
(5,932)
(27,707)
1,125
8,500
(66)
(885)
8,674
(8)
(68)
(297)
1,841
1,468
7,206
(19,432)
(363)
(4,976)
(17,565)
(3,496)
7,000
212
6,234
9,950
-
(51)
-
(26,883)
(26,934)
21.2 Terms and repayment schedule
As at 31
March
2020
£000
3,710
(12,483)
(151)
(25,625)
(34,549)
RCF
Term Loan
Leases
21.3 Leases
Currency
Nominal
interest rate
Year of
maturity
GBP
GBP
GBP
LIBOR + 2.40%
0.0-2.0%
1.4-7.5%
2020
2020-22
2020-35
Present
value as at
31 March
2020
£000
Finance
charges
£000
Future lease
payments
as at
31 March
2020
Present
value as at
31 March
2019
£000
£000
Not later than 1 year
3,528
1,229
4,757
2,762
After 1 year but not more
than 5 years
After more than 5 years
9,395
12,702
25,625
3,198
4,530
8,957
12,593
17,232
34,582
2,214
-
4,976
Future lease
payments
as at
31 March
2019
£000
2,823
2,291
-
5,114
Finance
charges
£000
61
77
-
138
101
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
22 Liquidity risk
The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the
balance sheet date to the contractual maturity date. These amounts disclosed in the table are the contracted undiscounted
cash flows. Balances within 12 months equal their carrying balances as the impact of discounting is not significant.
At 31 March 2020
Bank loans
Leases
Term loans
Trade payables
Other payables
At 31 March 2019
Bank loans
Finance leases
Term loans
Trade payables
Other payables
Less than
1 year
1 - 5 years
More than
5 years
£000
£000
£000
12,500
3,528
115
7,661
198
-
-
9,395
12,702
36
-
-
-
-
-
Total
£000
12,500
25,625
151
7,661
198
24,002
9,431
12,702
46,135
-
2,762
294
6,603
274
9,933
19,500
2,214
69
-
-
21,783
-
-
-
-
-
-
19,500
4,976
363
6,603
274
31,716
Borrowings exclude unamortised loan arrangement fee of £17,000 (FY19: £68,000)
23 Provisions
Restitution
Scheme
provision
Dilapidations
provision
Onerous
service contract
provision
Total
provision
£000
£000
£000
£000
At 1 April 2018
Additional provisions created during the period
Utilised during the period
At 31 March 2019
-
-
-
-
376
120
-
496
Additional provisions created during the period
11,429
2,030
-
538
(4)
534
833
(156)
(513)
698
376
658
(4)
1,030
14,292
(156)
(513)
14,653
-
-
-
-
11,429
2,526
11,429
-
11,429
-
2,526
2,526
693
5
12,122
2,531
698
14,653
Released during the period
Utilised during the period
At 31 March 2020
Analysed as:
Current
Non-current
The Restitution Scheme provision relates to the settlement agreed with the FCA in respect of certain historical accounting
misstatements that were uncovered by the Company in November 2016. As part of this settlement, the Company agreed to
implement a Restitution Scheme to compensate net purchasers of ordinary shares in the Company between 9 November 2015
102
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
23 Provisions (continued)
and 6 November 2016. The amount represents management’s best estimate of the cost to the Group. The uncertainty in the
value arises as a result of the fact that claimants have the option to opt for a cash payment, a share payment or a split payment.
All outflows associated with the Restitution Scheme are expected to be made by 31 October 2020.
The dilapidations provision represents the estimated costs associated with returning certain leasehold properties to the original
condition upon exiting the lease. Given there is judgement in determining the quantum of provisions to be recognised a third-
party expert was engaged to determine appropriate estimates.
24 Share capital and share premium
At 1 April 2018 and 31 March 2019
New shares issued
At 31 March 2020
Ordinary shares of 0.1p each
£000
£000
149,135,316
175,397
149,310,713
149
-
149
Share
premium
£000
65,588
146
65,734
During the year the Company purchased, and held in treasury, 822,427 of its ordinary share capital for total proceeds of
£724,000. The total shares held in treasury at 31 March 2020 was 822,427 (31 March 2019: Nil).
The number of shares authorised is the same as the number of shares issued. Ordinary shareholders have the right to attend,
vote and speak at meetings, receive dividends, and receive a return on assets in the case of a winding up.
25 Share-based payments
At 31 March 2020, the Group had the following share-based payment arrangements in place:
Long-Term Incentive Plan (LTIP)
The Group operates a Long-Term Incentive Plan (LTIP) under which the Executive directors and key management personnel are
awarded nil cost options that will vest subject to the achievement of performance conditions relating to the growth in earnings
per share.
Save As You Earn (SAYE)
The Group operates a HMRC approved SAYE scheme which offers its UK based colleagues the opportunity to participate in a
share purchase plan. To participate in the plan, the colleagues are required to save an amount of their gross monthly salary, up
to a maximum of £500 per month, for a period of 36 months. Under the terms of the plan, at the end of the three-year period
the colleagues are entitled to purchase shares using funds saved at a price 20% below the market price at grant date. Only
colleagues who remain in service and save the required amount of their gross monthly salary for 36 consecutive months will
become entitled to purchase the shares. Colleagues who cease their employment, do not save the required amount of their
gross monthly salary in any month before the 36-month period expires, or elect not to exercise their options to purchase shares
will be refunded their saved amounts.
The Group recognised the following expense for its share-based payments:
Equity-settled share-based charge on LTIP scheme
Equity-settled share-based charge on SAYE scheme
National Insurance arising on share options
103
Year ended
31 March 2020
Year ended
31 March 2019
£000
£000
362
122
78
562
221
133
12
366
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
25 Share-based payments (continued)
The fair value of the equity-settled share options granted is estimated as at the date of grant using a binomial model, taking
into account the terms and conditions upon which the options were granted. The following table illustrates the number and
weighted average exercise prices (WAEP) of, and movements in, share options during the year.
EMI
LTIP
SAYE
MXC
TOTAL
WAEP
Balance at 31 March 2018
581,968
845,621
1,495,532
7,000,000
9,923,121
Issued in the period
Forfeited in the period
Cancelled in the period
Exercised in the year
Lapsed in the year
Balance at 31 March 2019
Issued in the period
Forfeited in the period
Cancelled in the period
Exercised in the year
Lapsed in the year
Balance at 31 March 2020
-
-
-
-
914,209
-
-
-
-
(130,905)
(100,483)
-
-
-
-
-
914,209
(130,905)
(100,483)
-
(581,968)
(484,230)
(289,624)
(7,000,000)
(8,355,822)
-
-
-
-
-
-
-
1,275,600
974,520
1,667,517
488,342
(92,619)
-
(161,905)
(105,763)
-
(49,126)
(13,492)
(74,486)
2,582,830
1,325,758
-
-
-
-
-
-
-
2,250,120
2,155,859
(92,619)
(49,126)
(175,397)
(180,249)
3,908,588
72.2p
0.1p
76.3p
70.4p
70.0p
76.3p
27.7p
14.4p
0.1p
63.0p
4.9p
38.8p
21.1p
As at 31 March 2020 the Company had a total of 350,000 (31 March 2019: 350,000) warrants in issue with an exercise price
of 36p. The warrants were issued to Barclays Bank PLC on demerger in April 2013 in exchange for warrants previously held
in Redstone Plc, and can be converted to shares at any time before the sale of the entire share capital of the Company.
Redcentric Plc was created when Redstone Plc demerged its network-based management services business.
The weighted average remaining contractual life for the share options outstanding at 31 March 2020 is 6 years and 5 months
(31 March 2019: 5 years and 10 months). The range of exercise prices for options outstanding at the end of the year was 0p to
63p. Share options outstanding at the end of the year with approximate remaining average life are as follows:
Exercise price
Number, year ended
31 March 2020
Life at
31 March 2020
Number, year ended
31 March 2019
Life at
31 March 2019
0p
63p
63p
154p
2,582,830
8 years, 10 months
845,973
479,785
-
0 years, 11 months
3 years, 0 months
1,275,600
949,398
-
8 years, 10 months
1 year, 11 months
-
-
25,122
0 years, 6 months
3,908,588
6 years, 5 months
2,250,120
5 years, 10 months
The following table illustrates the status of the options outstanding at the end of the year:
31 March 2020
Number of options
31 March 2020
WAEP
31 March 2019
Number of options
31 March 2019
WAEP
Performance conditions satisfied
Subject to performance conditions
Save-As-You-Earn
Outstanding at the end of the year
-
2,582,830
1,325,758
3,908,588
104
0p
0p
63p
21p
-
1,275,600
974,520
2,250,120
0p
0p
65p
28p
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
26 Capital commitments
The Group had no contracted but not provided for capital commitments at 31 March 2020 (31 March 2019: £nil).
27 Pensions
The Group operates a defined contribution pension scheme for eligible employees. The charge for the year ended 31 March
2020 was £624,000 (FY19: £581,000). At the year- end there was a pension’s creditor of £0.1m (2019: £0.1m).
28 Subsidiaries
The undertakings whose results and financial position are consolidated within the Group financial statements at 31 March 2020
are as follows:
Principal activity
Country
of incorporation
% of ordinary share
capital owned
Held directly by Redcentric plc
Redcentric Holdings Limited
Redcentric Solutions Limited
Held indirectly
Dormant
England and Wales
Managed Services
England and Wales
Redcentric Solutions Private Limited
Support services
India
Redcentric MS Limited
Redcentric Managed Solutions Limited
Redcentric Communications Limited
Hotchilli Internet Limited
Redcentric US Limited
Calyx Managed Services Limited
City Lifeline Limited
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
England and Wales
England and Wales
England and Wales
England and Wales
USA
England and Wales
England and Wales
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Companies have a registered office of Central House, Beckwith Knowle, Harrogate HG3 1UG, except Redcentric Solutions
Private Limited which has a registered office at # 606-611, 6th Floor, Manjeera Trinity Corporate, JNTU – Hitech City Road,
Kukatpally, Hyderabad – 72, and Redcentric US Limited which has a registered office at 874 Walker Road, Suite C, Dover,
Kent, USA 19904.
29 Related parties
The Group has taken exemption not to disclose transactions with entities wholly owned by the Group.
Directors’ emoluments are disclosed in the Remuneration Report on page 49 and compensation of key management personnel
is disclosed in note 11.
There were no other transactions with related parties in the year to 31 March 2020.
30 Subsequent events
Post the year-end the Group’s existing bank facilities have been extended by to 30 June 2022, with all terms and covenants
remaining the same until this time. On 17 July 2020 certain amendments were made to the Facilities Agreement to allow for
the impact of the Proposed Restitution Scheme.
105
Financial statementsAnnual Report and Accounts 2020 Notes to the consolidated financial statements
for the year ended 31 March 2020 (continued)
30 Subsequent events (continued)
The Company reached a settlement with the FCA in connection with the FCAs Investigation in relation to the Company,
which was announced on 26 June 2020. This concludes the long running investigation and removes significant uncertainty
and costs for the Company. It also enables management to focus solely on the business, reopens FCA regulated markets
and should remove caution from new logo customers who are considering transferring their mission critical IT infrastructure to
the Company.
As part of the settlement agreed with the FCA, the Company agreed to pay restitution to net purchasers of ordinary shares in
the Company between 9 November 2015 and 7 November 2016 under the Restitution Scheme. Each potential claimant under
the Restitution scheme agreed with the FCA who goes on to receive a restitution payment is required to waive any and all
claims they may have against the Company in relation to any matters arising out of or connected with the matters referred to in
the final notice issued by the FCA on 26 June 2020.
On 13 July 2020, the Company announced the following:
1. the placing of 3,910,000 new ordinary shares at the issue price of 110p per share;
2. the subscription for 1,340,000 new ordinary shares by Coltrane Asset Management; and
3. the issue of 308,000 new ordinary shares to Harwood Capital pursuant to a deed of settlement dated 26 June 2020 between
the Company and Harwood Capital and settling all claims against the Company in the same manner and on the same basis
as if they had participated in the Restitution Scheme.
106
Financial statementsAnnual Report and Accounts 2020 Company Balance Sheet
as at 31 March 2020
Fixed Assets
Investments
Current liabilities
Creditors – amounts falling due within one year
Provisions
Net current liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Share option reserve
Own shares held in treasury
Retained earnings
Total shareholders’ funds
31 March 2020
31 March 2019
Note
£000
£000
2
3
4
102,402
101,918
(15,726)
(11,429)
(27,155)
(12,271)
-
(12,271)
75,247
89,647
149
65,734
6,194
(724)
3,894
75,247
149
65,588
5,856
-
18,054
89,647
The notes on pages 109 to 110 are an integral part of these financial statements.
The financial statements of Redcentric Plc (Registration Number 08397584) on pages 107 to 108 were approved by the Board
on 21 July 2020 and are signed on its behalf by:
David Senior
Chief Financial Officer
107
Financial statementsAnnual Report and Accounts 2020 Company Statement of Changes in Equity
for the year ended 31 March 2020
Called up
Share Capital
Share
Premium
Share
option
reserve
Own shares
held in
treasury
Retained
earnings
Total Equity
Balance at 1 April 2018
Transactions with owners
Write off
Dividend paid to shareholders
Share-based payments
At 31 March 2019
Loss for the period
Transactions with owners
Dividend paid to shareholders
Issue of new shares
Share buy-back
Share-based payments
At 31 March 2020
149
65,588
5,503
-
-
-
-
-
-
149
65,588
-
-
-
-
-
-
-
146
-
-
149
65,734
-
-
353
5,856
-
-
(146)
-
484
6,194
-
-
-
-
-
-
-
-
(724)
-
(724)
18,645
89,885
6
(597)
-
6
(597)
353
18,054
(11,429)
89,647
(11,429)
(2,731)
(2,731)
-
-
-
-
(724)
484
3,894
75,247
108
Financial statementsAnnual Report and Accounts 2020 Notes to the Company Financial Statements (continued)
1 Accounting policies
The Company has elected to prepare the financial statements under FRS 101.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following
disclosures:
•
•
•
•
•
•
•
a cash flow statement and related notes;
comparative period reconciliations for share capital, tangible fixed assets, intangible assets and investments;
disclosures in respect of transactions with wholly owned subsidiaries;
disclosures in respect of capital management;
the effects of new but not yet effective IFRS;
disclosures in respect of the compensation of key management personnel; and
disclosures of transactions with a management entity that provides key management personnel services to the Company.
As the consolidated financial statements of the ultimate parent undertaking include the equivalent disclosures, the Company
has also taken the exemptions under FRS 101 available in respect of the following disclosures:
•
IFRS 2 Share based payments in respect of group settled share-based payments
• Certain disclosures required by IAS 36 Impairment of assets in respect of the impairment of goodwill and indefinite life
intangible assets;
• Certain disclosures required by IFRS 3 Business Combinations in respect of business combinations undertaken by the
Company in the current and prior periods including the comparative period reconciliation for goodwill; and
• Certain disclosures required by IFRS 13 Fair Value Measurement and the disclosures required by IFRS 7 Financial
Instrument Disclosures.
The accounting policies set, unless otherwise stated, been applied consistently to all periods presented in these
financial statements.
2 Investments
Investments in subsidiaries
Capital contribution related to share-based payments for subsidiaries
Year ended
31 March
£000
Year ended
31 March
£000
96,062
6,340
102,402
96,062
5,856
101,918
The investment in the underlying subsidiaries has been considered by management to assess possible impairment at the year
end. The investment recoverable amount was based on the value in use calculation using budgeted cash flow projections
to the period of 31 March 2022, extrapolated for a further three years by an average annual revenue growth rate of 2.0%. A
terminal value based on a perpetuity calculation using a 0.0% real growth rate was then added.
In addition to revenue growth, the key assumptions used in the impairment testing were as follows:
• Gross margin percentage of 60.5%
•
•
Pre-tax discount rate of 9.21% (post tax 8.6%); and
Terminal growth rate percentage of 0.0%
109
Financial statementsAnnual Report and Accounts 2020 Notes to the Company Financial Statements (continued)
2 Investments (continued)
A reasonably possible adverse movement in any of the above key assumptions made would not give rise to impairment.
The subsidiary undertakings of the Company are disclosed in note 28 to the consolidated financial statements.
3 Creditors – amounts falling due within one year
Amounts owed to subsidiaries
15,726
12,271
Amounts due to Group undertakings are unsecured, interest-free and have no fixed payment terms.
Year ended
31 March 2020
Year ended
31 March 2019
£000
£000
4 Provisions
Restitution scheme provision
Year ended
31 March 2020
Year ended
31 March 2019
£000
11,429
£000
-
The Restitution Scheme provision relates to the settlement agreed with the FCA settlement in respect of certain historical
accounting misstatements that were uncovered by the Company in November 2016. As part of this settlement, the Company
agreed to implement a Restitution Scheme to compensate net purchasers of ordinary shares in the Company between 9
November 2015 and 6 November 2016. The amount represents management’s best estimate of the cost to the company. The
uncertainty in the value arises as a result of the fact that claimants have the option to opt for a cash payment, a share payment
or a split payment. All outflows associated with the Restitution Scheme are expected to be made by 30 October 2020.
5 Share capital
Details of the share capital of the company are disclosed in note 24 to the consolidated financial statements. During the year
the Company purchased, and held in treasury, 822,427 of its ordinary share capital for total proceeds of £724,000, representing
0.5% of the total called up share capital.
6 Auditors’ remuneration
The Company audit fee is £25,000 (FY19: £25,000). This fee was borne by another Group company.
7 Related parties
The Group has taken exemption not to disclose transactions with entities wholly owned by the Group.
Directors’ emoluments are disclosed in the Remuneration Report of the consolidated financial statements on page 49.
There were no other transactions with related parties in the year to 31 March 2020.
110
Financial statementsAnnual Report and Accounts 2020 Appendix: impact of IFRS 16 (unaudited) (continued)
Consolidated statement of comprehensive income
Revenue
Cost of sales
Gross Profit
Operating expenditure
Adjusted EBITDA
Depreciation
Amortisation of intangibles
Exceptional items
Share-based payments
Year ended
31 March
2020 pre
IFRS 16
Impact of
IFRS 16
Year
ended
31 March
2020 as
reported
Year ended
31 March
2019
£000
£000
£000
£000
87,485
(32,297)
55,188
(64,845)
17,567
(6,697)
(7,449)
(12,516)
(562)
-
-
-
920
3,037
(2,117)
-
-
-
87,485
(32,297)
55,188
(63,925)
20,604
(8,814)
(7,449)
(12,516)
(562)
93,260
(36,895)
56,365
(56,650)
16,714
(7,330)
(7,392)
(1,911)
(366)
Operating (loss) / profit
(9,657)
920
(8,737)
(285)
Finance income
Finance costs
Profit / (loss) on ordinary activities before taxation
Income tax credit/(charge)
Profit / (loss) for the period attributable to owners
of the parent
Other comprehensive income
Items that may be classified to profit or loss:
Currency translation differences
Total comprehensive income / (loss) for the period
Earnings per share
Basic (loss) per share
Diluted earnings/(loss) per share
Adjusted basic earnings per share
Diluted earnings per share
5
(774)
(10,426)
13
-
(1,107)
(187)
-
5
(1,881)
(10,613)
13
13
(1,091)
(1,363)
(604)
(10,413)
(187)
(10,600)
(1,967)
13
(10,400)
-
13
8
(187)
(10,587)
(1,959)
(7.01)p
(7.01)p
4.86p
4.79p
(0.13)p
(0.13)p
(0.10)p
(0.11)p
(7.14)p
(7.14)p
4.76p
4.68p
(1.32)p
(1.32)p
3.89p
3.86p
111
Financial statementsAnnual Report and Accounts 2020 Appendix: impact of IFRS 16 (unaudited) (continued)
Consolidated statement of financial position
Non-Current Assets
Intangible assets
Tangible assets
Deferred tax asset
Current Assets
Inventories
Trade and other receivables
Corporation tax receivable
Cash and short-term deposits
Total assets
Current Liabilities
Trade and other payables
Borrowings
Provisions
Non-current liabilities
Borrowings
Provisions
Total liabilities
Net assets
Equity
Called up share capital
Share premium account
Capital redemption reserve
Own shares held in treasury
Retained earnings
Total Equity
31 March
2020
pre IFRS 16
Impact of
IFRS 16
Year
ended
31 March
2020 as
reported
31 March
2019
£000
£000
£000
£000
68,867
17,783
952
87,602
891
23,784
346
3,710
28,731
116,333
(24,249)
(14,231)
(12,122)
(50,602)
(2,982)
(500)
(3,482)
(54,084)
-
20,684
530
68,867
38,467
1,482
21,214
108,816
-
(523)
-
-
(523)
20,691
(62)
(1,895)
-
(1,957)
(19,151)
(2,031)
(21,182)
(23,139)
891
23,261
346
3,710
28,208
137,024
(24,311)
(16,126)
(12,122)
(52,559)
(22,133)
(2,531)
(24,664)
(77,223)
75,802
18,133
142
94,077
357
21,907
196
7,206
29,666
123,743
(22,297)
(3,056)
(149)
(25,502)
(21,715)
(881)
(22,596)
(48,098)
62,249
(2,448)
59,801
75,645
149
65,734
(9,454)
(724)
6,544
62,249
-
-
-
-
(2,448)
(2,448)
149
65,734
(9,454)
(724)
4,096
59,801
149
65,588
(9,454)
-
19,362
75,645
112
Financial statementsAnnual Report and Accounts 2020 Appendix: impact of IFRS 16 (unaudited) (continued)
Consolidated cash flow statement
Operating (loss) / profit
Adjustment for non-cash items
Depreciation and amortisation
Exceptional items
Share-based payments
Operating cash flow before exceptional items
and movements in working capital
Loss on sale of fixed asset
Exceptional items and NI on share-based payments
Year ended
31 March
2020 pre
IFRS 16
Impact of
IFRS 16
Year
ended
31 March
2020 as
reported
Year ended
31 March
2019
£000
£000
£000
£000
(9,657)
920
(8,737)
(285)
14,146
12,516
562
17,567
-
(817)
2,117
-
-
16,263
12,516
562
3,037
20,604
-
-
-
(817)
14,722
1,911
366
16,714
(42)
(1,668)
Operating cash flow before changes in working capital
16,750
3,037
19,787
15,004
Changes in working capital
Decrease/(Increase) in inventories
Decrease/(Increase) in trade and other receivables
Increase/(Decrease) in trade and other payables
Cash generated from operations
Tax paid
Net cash generated from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment
Purchase of intangible fixed assets
Net cash used in investing activities
Cash flows from financing activities
Dividends paid
Share buy-back
Interest paid
Repayment of leases
Repayment of borrowings
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effect of exchange rates
Cash and cash equivalents at end of the period
113
(534)
(1,754)
1,130
15,592
(660)
14,932
-
(3,943)
(290)
(4,233)
(2,731)
(724)
(718)
(3,009)
(7,000)
(14,182)
(3,483)
7,206
(13)
3,710
-
(25)
213
3,225
-
3,225
-
-
-
-
-
-
(1,107)
(2,118)
-
(534)
(1,779)
1,343
18,817
(660)
18,157
-
(3,943)
(290)
(4,233)
(2,731)
(724)
(1,825)
(5,127)
(7,000)
309
5,775
(1,467)
19,621
(1,873)
17,748
665
(4,665)
(564)
(4,564)
(597)
-
(1,044)
(1,918)
(8,500)
(3,225)
(17,407)
(12,059)
-
-
-
-
(3,483)
7,206
(13)
3,710
1,125
6,089
(8)
7,206
Financial statementsAnnual Report and Accounts 2020 Appendix: impact of IFRS 16 (unaudited) (continued)
Consolidated net debt
Adjusted EBITDA
Effect of exchange rates
Working capital movements
Adjusted cash generated from operations
Cash conversion
Capital expenditure – cash purchases
Capital expenditure – finance lease purchases
Proceeds from sale and lease back of assets
Proceeds from sale of fixed assets
Net capital expenditure
Corporation tax
Interest paid
Loan arrangement fees/fee amortisation
Payment of lease liabilities
Effect of exchange rates
Other movements in net debt
Normalised net debt movement
Lease liabilities adopted under IFRS 16
Cash cost of exceptional items
Share buy-back
Dividends
Year ended
31 March
2020 pre
IFRS 16
Impact of
IFRS 16
Year
ended
31 March
2020 as
reported
Year ended
31 March
2019
£000
£000
£000
£000
17,567
13
(1,158)
16,422
93.5%
(4,233)
(2,402)
-
-
(6,635)
(660)
(718)
(51)
-
(13)
(1,442)
8,345
-
(817)
(724)
(2,731)
(4,272)
3,037
20,604
16,714
-
188
3,225
106.2%
-
-
-
-
-
-
(1,107)
-
(2,117)
-
(3,224)
13
(970)
19,647
95.4%
(4,233)
(2,402)
-
-
(6,634)
(660)
(1,825)
(51)
(2,117)
(13)
(4,666)
-
4,575
21,289
127.4%
(5,229)
(2,506)
1,181
665
(5,889)
(1,873)
(1,044)
(68)
-
(8)
(2,993)
1
8,346
12,407
(21,058)
(21,058)
-
-
-
(817)
(724)
(2,731)
(21,058)
(25,330)
-
(1,668)
-
(597)
(2,265)
Decrease in net debt
4,073
(21,057)
(16,984)
10,142
Net debt at the beginning of the period
Net debt at the end of the period
(17,565)
(13,492)
-
(21,057)
(17,565)
(34,549)
(27,707)
(17,565)
114
Financial statementsAnnual Report and Accounts 2020 Directors and advisers
Directors
Nominated Adviser and Broker
FinnCap plc
60 New Broad Street
London EC2M 1JJ
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham BR3 4TU
Legal Advisors to the Group
Travers Smith
10 Snow Hill
London EC1A 2AL
Clarion Solicitors
Elizabeth House
13-19 Queen Street
Leeds LS1 2TW
Executive
Peter Brotherton – Chief Executive Officer
David Senior – Chief Financial Officer
Non-executive
Ian Johnson
Steve Vaughan
Jon Kempster
Company Secretary
Harn Jagpal
Company Number
08397584
Registered Office
Central House
Beckwith Knowle
Harrogate HG3 1UG
Auditor
KPMG LLP
1 Sovereign Square
Sovereign Street
Leeds LS1 4DA
Printed in the United Kingdom
on FSC certified paper
115
HEAD OFFICE
Central House
Beckwith Knowle
Harrogate
HG3 1UG
T 0800 983 2522
E sayhello@redcentricplc.com
W www.redcentricplc.com